UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2013

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File No. 000-52947

United Financial Bancorp, Inc.

(Exact name of registrant as specified in its charter)


Maryland		74-3242562
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

95 Elm Street, West Springfield, Massachusetts		01089
(Address of Principal Executive Offices)		Zip Code

(413) 787-1700

(Registrant’s telephone number)

Securities Registered Pursuant to Section 12(b) of the Act:


Common Stock, par value $0.01 per share		NASDAQ Global Select Market
(Title of each class)		Name of each exchange on which registered

Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ¨ NO x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES ¨ NO x

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 twelve months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such requirements for the past 90 days. YES x NO ¨.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, 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 period that the registrant was required to submit and post such files). YES x NO ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. ¨.

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


Large accelerated filer ¨		Accelerated filer x		Non-accelerated filer ¨		Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES ¨ NO x

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, computed by reference to the last sale price on June 30, 2013, as reported by the NASDAQ Global Select Market, was approximately $287.6 million.

As of March 5, 2014, 19,790,762 shares of the registrant’s common stock were outstanding.

TABLE OF CONTENTS


ITEM	PART I	PAGE
1	BUSINESS		1
1A	RISK FACTORS		39
1B	UNRESOLVED STAFF COMMENTS		46
2	PROPERTIES		46
3	LEGAL PROCEEDINGS		47
4	MINE SAFETY DISCLOSURES		47

	PART II

5	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES		47
6	SELECTED FINANCIAL DATA		50
7	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		52
7A	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		70
8	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA		71
9	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE		71
9A	CONTROLS AND PROCEDURES		71
9B	OTHER INFORMATION		73

	PART III
10	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE		73
11	EXECUTIVE COMPENSATION		73
12	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS		73
13	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE		74
14	PRINCIPAL ACCOUNTING FEES AND SERVICES		74

	PART IV
15	EXHIBITS, FINANCIAL STATEMENT SCHEDULES		74

	SIGNATURES

PART I

ITEM 1.

BUSINESS

Terminology

As used in this Annual Report, unless we specify otherwise, terms such as “we,” “us,” and “our” refer to United Financial Bancorp, Inc., a Maryland corporation, or United Bank, a federal savings bank and the wholly owned subsidiary of United Financial Bancorp, Inc., as indicated by the context.

Forward Looking Statements

This Annual Report contains certain “forward-looking statements” that may be identified by the use of words such as “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated” and “potential.” Examples of forward-looking statements include, but are not limited to, estimates with respect to our financial condition, results of operations and business that are subject to various factors that could cause actual results to differ materially from these estimates and most other statements that are not historical in nature. These factors include, but are not limited to, general and local economic conditions, changes in interest rates, deposit flows, demand for mortgage and other loans, real estate values, the ability to obtain regulatory approvals and meet other closing conditions to the merger with Rockville Financial, Inc. on the expected terms and schedule, competition, changes in accounting principles, policies, or guidelines, changes in legislation or regulation, and other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services. Additional factors are discussed in this Annual Report on Form 10-K under “Item 1A. Risk Factors.” These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Forward-looking statements speak only as of the date they are made and we do not undertake to update forward-looking statements to reflect circumstances or events that occur after the date of the forward-looking statements or to reflect the occurrence of unanticipated events. Accordingly, past results and trends should not be used by investors to anticipate future results or trends.

United Financial Bancorp, Inc.

United Financial Bancorp, Inc. (the “Company”), a Maryland corporation incorporated in 2007, is the holding company for United Bank. The Company’s assets consist of its investment in United Bank and its liquid investments. The Company is primarily engaged in the business of directing, planning, and coordinating the business activities of the Bank. The Company’s most significant asset is its investment in the Bank.

In 2007, the Company sold 9,564,570 shares of its common stock in connection with the “second-step” conversion from mutual to stock form of United Financial Bancorp, MHC, a federal mutual corporation. The Company contributed $45.1 million of the net proceeds of the offering to United Bank.

On November 30, 2009, the Company acquired CNB Financial Corp. (“CNB Financial”), the holding company for Commonwealth National Bank. The transaction qualified as a tax-free reorganization for federal income tax purposes. The consideration paid in the transaction to stockholders of CNB Financial consisted of 943,376 shares of Company common stock and $12.6 million in cash. Based upon the Company’s $12.84 per share closing price on November 30, 2009, the transaction was valued at approximately $24.8 million. As a result of this transaction, the Company added six branches, $289.3 million in assets, $242.9 million in loans and $195.2 million in deposits to its franchise.

On November 16, 2012, the Company acquired New England Bancshares, Inc. (“NEBS”), the holding company for New England Bank. The transaction qualified as a tax-free reorganization for federal income tax purposes. The consideration paid in the transaction to stockholders of NEBS consisted of 5,559,495 shares of Company common stock and $2.3 million in cash. Based upon the Company’s $14.24 per share closing price on November 16, 2012, the transaction was valued at approximately $81.5 million. As a result of this transaction, the Company expanded its operations into Connecticut and added 15 branches, $745.8 million in assets, $554.0 million in loans and $597.0 million in deposits to its franchise.

On November 15, 2013, the Company and Rockville Financial, Inc. (“Rockville Financial”), the parent company of Rockville Bank, announced the signing of a definitive agreement under which Rockville Financial will acquire the Company in an all-stock transaction valued at $369 million, based on the closing price of Rockville Financial common stock of $13.62 on November 14, 2013. Under the terms of the definitive merger agreement, the Company’s shareholders will receive 1.3472 shares of Rockville Financial common stock for each share of the Company’s common stock. Upon closing, Rockville Financial shareholders will own approximately 49% of stock in the combined company and United Financial Bancorp, Inc. shareholders will own approximately 51%. The transaction, which has been approved by the boards of directors of both the Company and Rockville Financial, is expected to close by mid-year 2014. The transaction is subject to approval by shareholders from both companies, regulatory approval and other customary closing conditions.

The Company is authorized to pursue other business activities permitted by applicable laws and regulations for savings and loan holding companies which may include the acquisition of banking and financial services companies. See “—Supervision and Regulation—Holding Company Regulation” for a discussion of the activities that are permitted for savings and loan holding companies. We currently have no understandings or agreements to acquire other financial institutions. We also may borrow funds for reinvestment in United Bank.

The Company’s cash flows depend on earnings from interest-earning deposits and any dividends received from United Bank. The Company neither owns nor leases any property, but instead uses the premises, equipment and furniture of United Bank. At the present time, we employ as officers certain persons who are also officers of United Bank. However, we use the support staff of United Bank from time to time. These persons are not separately compensated by the Company. The Company may hire additional employees, as appropriate, to the extent it expands its business in the future.

The Company’s executive offices are located at 95 Elm Street, West Springfield, Massachusetts, and its telephone number is 413-787-1700.

United Bank

United Bank is a federally chartered savings bank headquartered in West Springfield, Massachusetts. United Bank was originally founded in 1882 as a Massachusetts-chartered cooperative bank. Over the years, United Bank has grown through internal growth as well as through a series of five mutual-to-mutual business combinations that occurred between 1960 and 1994 and acquisitions of Commonwealth National Bank and New England Bank described above. In February 2004, United Bank converted to a federal savings bank and, in April 2004, reorganized into the two-tier mutual holding company structure. In July 2005, United Bank completed a minority public stock offering through its holding company, raising net proceeds of $74.8 million. In November 2007, the Bank completed a second-step stock offering raising net proceeds of $83.0 million.

United Bank’s principal business consists of attracting retail deposits from the general public in the areas surrounding our main office in West Springfield, Massachusetts and our 16 branch offices located in our Springfield Region (Agawam, Chicopee, East Longmeadow, Feeding Hills, Holyoke, Huntington, Indian Orchard, Longmeadow, Ludlow, Northampton, Springfield and Westfield, Massachusetts as well as our 2 Express Drive-Up branches located in West Springfield and Northampton, Massachusetts) and seven branches in our Worcester Region (West Boylston, Whitinsville, Worcester, Shrewsbury, and Northborough Massachusetts). Following our acquisition of New England Bank, we now operate 12 branch offices in Hartford, Tolland, New Haven and Litchfield counties in Connecticut. We invest deposits, together with funds generated from operations, in one- to four-family residential mortgage loans, home equity loans and lines of credit, commercial real estate loans, construction loans, commercial and industrial loans, automobile loans, other consumer loans, and investment securities. In general, we retain in our portfolio all loans that we originate; however, over the past few years we have sold the majority of the 20- and 30-year fixed-rate one- to four-family residential loans we have originated in the secondary market, for strategic reasons, including interest rate risk management objectives. Occasionally, we will also enter into loan participations with other financial institutions. Our revenues are derived principally from interest on loans and securities. We also generate revenues from fees and service

charges and other income. United Bank emphasizes exceptional personal service for its customers. Our primary sources of funds are deposits, borrowings and principal and interest payments on loans and securities.

United Bank’s executive offices are located at 95 Elm Street, West Springfield, Massachusetts, and its telephone number is 413-787-1700.

Available Information

The Company’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are made available free of charge on our website, www.bankatunited.com, as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the Securities and Exchange Commission. The information on our website shall not be considered as incorporated by reference into this Form 10-K.

Market Area

We are headquartered in West Springfield, Massachusetts. Our primary market area for generating deposits is concentrated in the communities surrounding our main and branch offices. We also maintain two financial services facilities that offer insurance and investment products and financial planning services. These facilities are located in West Springfield and Northampton, Massachusetts. Our primary lending area is significantly broader than our deposit market area and includes all of Hampden and Hampshire Counties in Western Massachusetts, Worcester County, Massachusetts, as well as areas of Northern and Central Connecticut including Hartford, Tolland, New Haven and Litchfield counties. At December 31, 2013, 69.6% of our mortgage loan portfolio consisted of loans secured by real estate located in Hampden and Hampshire Counties, Massachusetts.

Springfield Region. The city of West Springfield is largely suburban and is located in the Pioneer Valley near the intersection of U.S. Interstates 90 (the Massachusetts Turnpike) and 91. Interstate 90 is the major east-west highway that transverses Massachusetts. Interstate 91 is the major north-south highway that runs directly through the heart of New England. West Springfield is located approximately 90 miles west of Boston, 70 miles southeast of Albany and 30 miles north of Hartford. According to a recent census report, West Springfield’s estimated 2012 population was approximately 28,574 and the estimated 2012 population for Hampden and Hampshire Counties was 465,923 and 159,795, respectively. From April 1, 2010 to July 1, 2012, the population of Hampden County increased 0.5% and the population of Hampshire County increased by 1.1%. The population of the Commonwealth of Massachusetts increased by 1.5% during the same period.

The economy of the Springfield Region has benefited from the presence of large employers such as the University of Massachusetts, Baystate Health System, Mass Mutual Financial Group, Big Y Supermarkets, Hasbro Games, Peter Pan Bus Lines, Westover Air Force Base, Smith & Wesson, Yankee Candle and Verizon. Other employment and economic activity is provided by financial institutions, colleges and universities, hospitals and a variety of wholesale and retail trade businesses. The Springfield Region also enjoys a strong tourism business with attractions such as Six Flags amusement park, the Eastern States Exposition, called “New England’s Great State Fair,” the Basketball Hall of Fame and several other notable cultural and recreational areas. According to recent census data, per capita and median household income for Hampden County was $25,646 and $49,729, respectively, in 2012, lower than the Commonwealth of Massachusetts ($35,485 and $66,658) and the United States ($28,051 and $53,046). 2012 per capita and median household income for Hampshire County was $29,246 and $66,658 respectively.

The Springfield Region job market has recently shown improvement. The unemployment rate in Hampden County decreased from a 2013 high of 9.6% in June to 8.5% in November 2013, which is higher than the unemployment rates for Massachusetts as a whole (6.6%) and to the United States as a whole (7.0%) during the same time period.

Worcester Region. Located one hour from our corporate headquarters in West Springfield, the city of Worcester is located 30 minutes from Boston’s MetroWest area and adjacent to the I-495 Corridor. Worcester is

the second largest city in New England with an estimated population of 182,669 in 2012. Worcester County’s 2012 population was 806,163, a 1.0% increase from 2010. United Bank’s Worcester Region Headquarters is located at 33 Waldo Street in Worcester, Massachusetts.

Worcester has a diversified economy. The City of Worcester is home to eight colleges and the University of Massachusetts Medical School, its largest employer. Biotechnology is a major enterprise within the city. Its biotech park is host to several innovative companies including Abbott Laboratories, a leading pharmaceutical research and manufacturing firm. Hanover Insurance maintains its national headquarters in Worcester and a subsidiary of Unum, the Paul Revere Life Insurance Company and Harleysville Worcester Insurance Company, the oldest life insurance company based in Massachusetts, are also headquartered in Worcester. In addition, Worcester is also home to several libraries and museums. Residents also enjoy access to several performing arts centers and a variety of annual music festivals and events.

According to recent census data, per capita and median household income for Worcester County for 2011 was $31,609 and $66,658. The unemployment rate in Worcester County decreased from 7.4% in December 2012 to 7.3% in November 2013.

Connecticut Region. The Connecticut region includes all of Hartford County in addition to eight towns in Tolland and New Haven Counties that are contiguous to towns in Hartford County as well as Wallingford in New Haven County and Plymouth in Litchfield County. Hartford County is directly contiguous with Hampden County. Located thirty minutes from our West Springfield corporate headquarters, the city of Hartford is the capital city of Connecticut. Hartford County had a population of 897,259 as of 2012. The Connecticut Region Headquarters is located at 855 Enfield Street in Enfield, Connecticut.

Hartford serves as the headquarters for several Fortune 500 companies, including United Technologies Corporation, The Hartford Financial Services Group, Aetna Inc., and Northeast Utilities. Hailed as the “insurance capital of the world,” Hartford County employs seven times more people in the insurance field than the average metropolitan area. Among these employers are Aetna, ING, CIGNA, Lincoln Life, Uniprise, Travelers, The Phoenix Companies, Mass Mutual and Prudential Financial Services. There are also significant businesses in other areas including the aerospace, precision machining, information technology and health and medical sectors. Among these employers are AT&T, Henkel Locite, Kaman, Lego Systems Inc., Retail Brand Alliance and Ahlstrom.

Hartford County is in the heart of the “New England Knowledge Corridor” that stretches from the city of Hartford to Western Massachusetts. Institutions of higher education include Trinity College, Wesleyan University, the University of Connecticut, the University of Hartford and Central Connecticut State University.

In addition, Hartford County is also home to several noteworthy libraries and museums including the Wadsworth Athenaeum Museum of Art, the Mark Twain House and Museum Center and the Air Museum. Residents also enjoy access to several performing arts centers and variety of annual music festivals and events. According to 2012 estimates, per capita income for Hartford County was $34,356 and median household income was $64,752. The unemployment rate in Hartford County decreased from 9.0% in January 2013 to 7.1% in November 2013.

Competition

We face intense competition within our market area both in making loans and attracting deposits. Our market area has a high concentration of financial institutions, large money center and regional banks including Bank of America Corp., TD Bank, N.A., People’s United Financial, Inc. and Webster Bank Financial Corporation, community banks and credit unions. Some of these institutions are significantly larger and, therefore, have significantly greater resources than we do and may offer products and services that we do not provide, such as trust services and private banking. As of June 30, 2013, the latest date for which data is available, our market share of deposits was 11.98%, or fourth of 20 banks, in Hampden County, 1.77%, or

eleventh of 16 banks, in Hampshire County, 1.53%, or twenty-first of 38 banks, in Worcester County and 1.44%, or tenth of 27 banks, in Hartford County, Connecticut.

Our competition for loans and deposits comes principally from commercial banks, savings and co-operative institutions, mortgage banking firms and credit unions. We face additional competition for deposits from short-term money market funds, brokerage firms, mutual funds and insurance companies.

Lending Activities

Our principal lending activities are the origination of first mortgage loans for the purchase or refinancing of one- to four-family residential real property, home equity, commercial real estate, construction and commercial and industrial loans. In general, we retain in our portfolio all loans that we originate; however, over the past few years we have sold the majority of the 20- and 30-year fixed-rate one- to four-family residential loans we have originated in the secondary market, for strategic reasons, including interest rate risk management objectives. At December 31, 2012, we had $632,000 loans held for sale. There were no loans held for sale at December 31, 2013.

Loan Portfolio Composition. The following table sets forth the composition of our loan portfolio by type of loan as of the dates indicated.


	At December 31,
	2013				2012				2011				2010				2009
	Amount		Percent		Amount		Percent		Amount		Percent		Amount		Percent		Amount		Percent
	(Dollars in thousands)
Types of loans:
Real estate loans:
One- to four-family	$	466,604		24.80%	$	441,874		24.33%	$	314,839		28.06%	$	295,721		27.53%	$	343,300		30.59%
Commercial		862,596		45.84%		814,692		44.86%		450,180		40.13%		427,994		39.85%		409,680		36.51%
Construction (1)		62,811		3.34%		52,778		2.90%		30,271		2.70%		27,553		2.57%		48,808		4.35%
Home equity		179,502		9.54%		179,039		9.86%		135,518		12.08%		138,290		12.87%		137,371		12.24%
Commercial and industrial		293,094		15.57%		306,192		16.86%		176,086		15.69%		165,335		15.39%		159,437		14.21%
Automobile		4,754		0.25%		6,492		0.36%		7,843		0.70%		11,051		1.03%		14,729		1.31%
Other consumer		12,478		0.66%		15,009		0.83%		7,142		0.64%		8,167		0.76%		8,916		0.79%

Total loans	$	1,881,839		100.00%	$	1,816,076		100.00%	$	1,121,879		100.00%	$	1,074,111		100.00%	$	1,122,241		100.00%

Other items:
Net deferred loan costs and fees		2,640				3,414				2,194				2,073				2,355
Allowance for loan losses		(13,413)				(12,089)				(11,132)				(9,987)				(9,180)

Total loans, net		$1,871,066			$	1,807,401			$	1,112,941			$	1,066,197			$	1,115,416

(1)	Includes $61,713, $49,725, $28,648, $24,833 and $45,615 of commercial construction loans at December 31, 2013, 2012, 2011, 2010 and 2009, respectively.

Loan Portfolio Maturities and Yields. The following table summarizes the scheduled repayments of our loan portfolio at December 31, 2013. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less.


	Residential				Commercial Real Estate				Construction				Home Equity				Commercial and Industrial				Automobile				Other Consumer				Total (1)
	Amount		Weighted Average Rate		Amount		Weighted Average Rate		Amount		Weighted Average Rate		Amount		Weighted Average Rate		Amount		Weighted Average Rate		Amount		Weighted Average Rate		Amount		Weighted Average Rate		Amount		Weighted Average Rate
	(Dollars in thousands)
Due during the years ending after December 31, 2013:
One year or less	$	10,438		5.46%	$	34,019		5.61%	$	20,947		4.79%	$	1,896		3.77%	$	59,066		3.09%	$	296		4.73%	$	344		4.22%	$	127,006		4.26%
More than one to five years		9,506		5.15%		196,604		4.47%		7,574		4.96%		16,603		3.88%		69,876		4.56%		4,458		3.40%		1,309		4.77%		305,930		4.48%
More than five years		441,894		3.98%		638,224		4.85%		34,699		4.33%		160,782		3.67%		165,283		4.22%		-		0.00%		10,478		8.25%		1,451,360		4.39%

Total	$	461,838		4.04%	$	868,847		4.79%	$	63,220		4.56%	$	179,281		3.69%	$	294,225		4.07%	$	4,754		3.48%	$	12,131		7.76%	$	1,884,296		4.40%

(1)	Excludes the fair value adjustment balance of $2.5 million recorded in connection with the acquisition of NEBS and CNB Financial.

The following table sets forth the scheduled repayments of fixed and adjustable-rate loans at December 31, 2013 that are contractually due after December 31, 2014.


	Due After December 31, 2014
	Fixed		Adjustable		Total
	(In thousands)
Residential real estate	$	415,175	$	36,225	$	451,400
Commercial real estate		291,219		543,609		834,828
Construction		25,186		17,087		42,273
Home equity		38,633		138,752		177,385
Commercial and industrial		83,981		151,178		235,159
Automobile		4,458		-		4,458
Other consumer		11,709		78		11,787

Total loans	$	870,361	$	886,929	$	1,757,290

One- to Four-Family Residential Mortgage Loans. One of our primary lending activities consists of the origination of one- to four-family residential mortgage loans, substantially all of which are secured by properties located in our primary market area. At December 31, 2013, $466.6 million, or 24.8% of our loan portfolio, consisted of one- to four-family residential mortgage loans. In general, we retain in our portfolio all loans that we originate; however, over the past few years we have sold the majority of the 20- and 30-year fixed-rate one- to four-family residential loans we have originated in the secondary market, for strategic reasons, including interest rate risk management objectives. One- to four-family mortgage loan originations are generally obtained from our in-house loan representatives, from existing or past customers, through advertising, and through referrals from local builders, real estate brokers and attorneys, and are underwritten pursuant to United Bank’s policies and standards. Generally, one- to four-family residential mortgage loans are originated in amounts up to 80% of the lesser of the appraised value or purchase price of the property, with private mortgage insurance or government guarantees required on loans with a loan-to-value ratio in excess of 80%. We generally will not make loans with a loan-to-value ratio in excess of 95%. Further, we generally limit the loan-to-value ratio to 70% on a cash-out refinance transaction based on updated appraisal information.

Fixed-rate mortgage loans are originated for terms of up to 30 years. Generally, fixed-rate residential mortgage loans are underwritten according to Fannie Mae guidelines, policies and procedures. We also offer adjustable-rate mortgage loans for one- to four-family properties, with an interest rate based on the weekly average yield on U.S. Treasuries adjusted to a constant maturity of one-year, which adjust either annually or every three years from the outset of the loan or which adjust annually after a five-, seven- or ten-year initial fixed-rate period. For the year ended December 31, 2013, we originated $123.1 million of fixed rate one- to four-family residential loans and $3.2 million of adjustable-rate one- to four-family residential loans. Our adjustable-rate mortgage loans generally provide for maximum rate adjustments of 2% per adjustment, with a lifetime maximum adjustment up to 6%, regardless of the initial rate. Our adjustable-rate mortgage loans amortize over terms of up to 30 years.

Adjustable rate mortgage loans decrease the risk associated with changes in market interest rates by periodically repricing, but involve other risks because as interest rates increase the underlying payments by the borrower increase, thus increasing the potential for default by the borrower. At the same time, the marketability of the underlying collateral may be adversely affected by higher interest rates. Upward adjustment of the contractual interest rate also is limited by the maximum periodic and lifetime interest rate adjustments permitted by our loan documents and, therefore, the effectiveness of adjustable-rate mortgage loans may be limited during periods of rapidly rising interest rates. At December 31, 2013, $36.0 million, or 7.7%, of our one- to four-family residential mortgage loans had adjustable rates of interest.

In an effort to provide financing for low- and moderate-income home buyers, we offer a variety of programs to qualified borrowers. These programs include Veterans Administration (VA), Federal Housing Administration (FHA), Massachusetts Housing Financing Agency (MHFA) and several other programs that we have developed in-house. These loans are offered with fixed rates of interest, terms of up to 30 years and are secured by one-to four-family residential properties. All of these loans are originated using agency underwriting guidelines. These loans may be originated in amounts with loan-to-value ratios up to 100%. Private mortgage insurance or government guarantees are required for loans with loan-to-value ratios over 80%. We also offer our own first-time homebuyer loans to qualified individuals. These loans are offered with terms of up to 30 years and fixed or adjustable rates of interest, which may be discounted, and the applicant may not be required to pay certain loan origination fees.

We also offer our employees who satisfy certain criteria and our general underwriting standards fixed- or adjustable rate loan products with reduced interest rates, and reduced application and loan origination fees. Employee and insider loans adhere to all other terms and conditions contained in the loan policy.

All residential mortgage loans that we originate include “due-on-sale” clauses, which give us the right to declare a loan immediately due and payable in the event that, among other things, the borrower sells or otherwise disposes of the real property subject to the mortgage and the loan is not repaid. All borrowers are required to

obtain title insurance for the benefit of United Bank. We also require homeowner’s insurance and fire and casualty insurance and, where circumstances warrant, flood insurance on properties securing real estate loans.

Commercial Real Estate Loans. We originate commercial real estate loans that are generally secured by five or more unit apartment buildings, industrial properties and properties used for business purposes such as small office buildings, hotels, motels, recreational and retail facilities mainly located in our primary market area. At December 31, 2013, commercial real estate mortgage loans totaled $862.6 million, or 45.8% of our total loans, compared to $814.7 million, or 44.9% of our total loans at December 31, 2012. Our real estate underwriting policies provide that such loans may be made in amounts up to 85% of the appraised value of the property, though such loans are generally limited to 80% of the appraised value. In addition, these loans must comply with our loan policy guidelines and with our current loans-to-one borrower limit for these types of loans which is generally 15% of our unimpaired capital and surplus which, at December 31, 2013, was approximately $39.0 million. Our commercial real estate loans may be made with amortization terms of up to 30 years that mature in 10 years. While the majority of our loans continue to be in the 20- to 25-year amortization range, we occasionally grant loans with 30-year amortization schedules on an exception basis. Commercial real estate loans are offered with interest rates that are fixed or adjust periodically and are generally indexed to the prime rate as reported in The Wall Street Journal or to rates published by the Federal Home Loan Bank of Boston. In reaching a decision on whether to make a commercial real estate loan, we consider the net operating income of the property, the borrower’s expertise and credit history, and the profitability of the underlying business and the value of the underlying property. In addition, with respect to real estate rental properties, we will also consider the term of the lease and the credit quality of the tenants. We generally require that the properties securing these real estate loans have stabilized debt service coverage ratios (the ratio of earnings before debt service to debt service) of at least 1.2 times. Environmental surveys are generally required for commercial real estate loans. Generally, commercial real estate loans made to corporations, partnerships and other business entities require personal guarantees by the principals unless certain loan-to-value ratios and debt service coverage thresholds are met.

A commercial borrower’s financial information is monitored on an ongoing basis by requiring periodic financial statement updates, payment history reviews and periodic face-to-face meetings with the borrower. We generally require commercial borrowers with loans in excess of $250,000 to provide annually updated financial statements and federal tax returns. These requirements also apply to the individual principals of our commercial borrowers when they are providing personal guarantees. We also require borrowers with rental investment property to provide us with an annual report of income and expenses for the property, including a tenant list and copies of leases, as applicable. The largest commercial real estate relationship in our portfolio at December 31, 2013 was a combination of loans totaling $28.2 million secured by three properties, all of which are medical buildings located in the Springfield area. The second largest commercial real estate relationship at that date was a loan of $21.9 million secured by an office building in Hartford fully leased to a local hospital and an office building development in Simsbury, Connecticut. All of these loans were performing in accordance with their terms at December 31, 2013. There were sixteen commercial real estate loans originated in excess of $5 million during 2013 with fifty percent being owner occupied and fifty percent for investment ($72.3 aggregate outstanding balance at December 31, 2013).

Loans secured by commercial real estate, including multi-family properties, generally involve larger principal amounts and a greater degree of risk than one- to four-family residential mortgage loans. Because payments on loans secured by commercial real estate often depend on the successful operation or management of the properties, repayment of such loans may be affected by adverse conditions in the real estate market or the economy.

Construction Loans. We originate construction loans for the development of one- to four-family residential properties located in our primary market area. Residential construction loans are generally offered to individuals for the construction of their personal residences. At December 31, 2013, residential construction loans totaled $1.1 million, or 0.1% of total loans, compared to $3.1 million, or 0.2% at December 31, 2012. At December 31, 2013, the unadvanced portion of these construction loans totaled $653,000.

Our residential construction loans generally provide for the payment of interest only during the construction phase, which is usually 12 months. In the case of construction loans to individuals for the construction of their primary residences, our policies require that the loan convert to a permanent mortgage loan at the end of the construction phase. Residential construction loans can be made up to a maximum loan-to-value ratio of 90%, provided that the borrower obtains private mortgage insurance if the loan balance exceeds 80% of the appraised value or sales price, whichever is less, of the secured property. Residential construction loans are generally made on the same terms as our one- to four-family mortgage loans.

We also make commercial construction and land development loans for residential and commercial development projects. The projects include single family, multi-family, apartment, industrial, retail and office buildings, and condominium developments. These loans generally have an interest-only phase during construction and then convert to permanent financing. We generally require that a commitment for permanent financing be in place prior to closing the construction loan. The maximum loan-to-value ratio limit applicable to these loans is generally 80%. Before making a commitment to fund a construction loan, we require an appraisal of the property by an independent licensed appraiser. We generally also review and inspect each property before disbursement of funds during the terms of the construction loan. Loan proceeds are disbursed after inspection based on the percentage-of-completion method. Due to current economic conditions, management has become more cautious in evaluating and approving funding for construction loans. At December 31, 2013, commercial construction and land development loans totaled $61.7 million, or 3.3% of total loans, compared to $49.7 million, or 2.7% of total loans, at December 31, 2012. At December 31, 2013, the largest outstanding commercial construction loan balance was for $3.7 million, and was secured by a commercial office building in Hartford, Connecticut that is fully leased. The largest land development loan was for $4.4 million and was secured by commercial land under development in Stamford, Connecticut. These loans were performing according to their terms at December 31, 2013. At December 31, 2013, the unadvanced portion of all commercial construction and land development loans totaled $101.5 million.

Construction and development financing is generally considered to involve a higher degree of credit risk than long-term financing on improved, owner-occupied real estate. Risk of loss on a construction loan depends largely upon the accuracy of the initial estimate of the value of the property at completion of construction compared to the estimated cost (including interest) of construction and other assumptions. If the estimate of construction cost proves to be inaccurate, we may be required to advance funds beyond the amount originally committed in order to protect the value of the property. Additionally, if the estimate of value proves to be inaccurate, the value of the project, when completed, may be insufficient to assure full repayment of the loan.

Home Equity Loans and Home Equity Lines of Credit. We also offer home equity loans and home equity lines of credit, both of which are secured by one- to four-family residences, substantially all of which are located in our primary market area. At December 31, 2013, home equity loans and equity lines of credit totaled $179.5 million, or 9.5% of total loans. Additionally, at December 31, 2013, the unadvanced amounts of home equity lines of credit totaled $154.9 million. The underwriting standards utilized for home equity loans and equity lines of credit include a determination of the applicant’s credit history, an assessment of the applicant’s ability to meet existing obligations and payments on the proposed loan and the value of the collateral securing the loan. The combined (first and second mortgage liens) loan-to-value ratio for home equity loans and equity lines of credit is limited to 80%. Home equity loans are offered with fixed and adjustable rates of interest and with terms of up to 20 years. Our home equity lines of credit have adjustable rates of interest, which are indexed to the prime rate, as reported in The Wall Street Journal, interest-only draw periods under the lines are limited to 10 years. We originated $55.3 million under home equity lines of credit and other home equity loans during the year ended December 31, 2013, as compared to total originations of $52.3 million during the year ended December 31, 2012.

Commercial and Industrial Loans. Commercial and industrial loans have been a substantial part of our lending operations for a number of years. At December 31, 2013, we had $293.1 million of commercial and industrial loans, which amounted to 15.6% of total loans compared to $306.2 million, or 16.9% of total loans at

December 31, 2012. We originate commercial and industrial loans primarily in our market area to a variety of professionals, sole proprietorships and small and mid-sized businesses. Commercial and industrial loan products include term loans and revolving lines of credit. The maximum amount of a commercial and industrial loan is limited by our loans-to-one-borrower limit which is generally 15% of our unimpaired capital and surplus and which, at December 31, 2013, was approximately $39.0 million. Such loans are generally used for working capital and purchasing equipment or furniture. Commercial and industrial loans are made with either adjustable or fixed rates of interest with a maximum term of twenty years. The interest rates for commercial loans are based on the prime rate, as published in The Wall Street Journal.

When making commercial and industrial loans, we consider the financial strength and debt service capabilities of the borrower, our lending history with the borrower, the projected cash flows of the business and the value and type of the collateral. Commercial and industrial loans are generally secured by a variety of collateral, primarily accounts receivable, inventory, equipment, savings instruments and readily marketable securities. In addition, we usually require the business principals to execute personal guarantees.

Commercial and industrial loans generally have greater credit risk than residential mortgage loans. Unlike residential mortgage loans, which generally are made on the basis of the borrower’s ability to make repayment from his or her employment or other income, and which are secured by real property whose value tends to be more easily ascertainable, commercial and industrial loans generally are made on the basis of the borrower’s ability to repay the loan from the cash flows of the borrower’s business. As a result, the availability of funds for the repayment of commercial and industrial loans may depend substantially on the success of the business itself. Further, any collateral securing the loans may depreciate over time, may be difficult to appraise and may fluctuate in value. We seek to minimize these risks through our underwriting standards. At December 31, 2013, our largest commercial and industrial loan outstanding was $6.6 million, which is secured by a certificate of deposit that we maintain. Our largest committed commercial and industrial relationship was $18.1 million to a manufacturer located in our primary market area. Including an additional $4.5 million participated out to another bank, the total relationship of $22.6 million is comprised of $4.0 million of commercial and industrial loan availability, a $4.6 million loan secured by business assets, an $8.3 million industrial development bond for the construction of a new facility ($4.5 million of which is participated out) and a $2.5 million commercial real estate loan on the borrower’s secondary facility. The total amount outstanding at December 31, 2013 was $16.0 million ($11.5 million net of participation), with no amounts outstanding on the line of credit. All loans to this customer were performing in accordance with loan terms at December 31, 2013.

Automobile and Other Consumer Loans. We offer direct automobile loans with terms of up to 60 months. For new cars, our lending policy provides that the amount financed should not exceed 100% of the gross selling price of the vehicle. For used cars, our lending policy provides that the amount of the loan should not exceed the “loan value” of the vehicle, as established by industry guides. The interest rates offered are the same for new and used automobile loans. Full insurance coverage must be maintained on the financed vehicle and United Bank must be named loss payee on the policy. At December 31, 2013, we had $4.8 million in automobile loans, which amounted to 0.3% of total loans.

We offer a variety of other consumer loans, principally to existing United Bank customers residing in our primary market area with acceptable credit ratings. Our other consumer loans generally consist of secured and unsecured personal loans, motorcycle and motor home loans, manufactured housing, boat loans and pool and spa loans. Other consumer loans totaled $12.5 million, or 0.7% of our total loan portfolio at December 31, 2013. At December 31, 2013, $573,000 of such consumer loans were unsecured.

Consumer loans have greater credit risk than residential mortgage loans, particularly in the case of loans that are unsecured or secured by rapidly depreciating assets such as automobiles, motorcycles, motor homes and boats. In these cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation. In addition, consumer loan collections depend on the borrower’s continuing financial stability, and thus are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy.

Loan Originations, Purchases, Sales, Participations and Servicing of Loans. Lending activities are conducted primarily by our loan personnel operating at our main and branch office locations. All loans that we originate are underwritten pursuant to our policies and procedures. We originate both fixed-rate and adjustable-rate loans. Our ability to originate fixed or adjustable rate loans is dependent upon relative customer demand for such loans, which is affected by current and expected future levels of market interest rates.

Generally, we retain in our portfolio all loans that we originate, however, for strategic reasons, including our interest rate risk management objectives, we periodically sell fixed-rate residential mortgage loans which conform to the underwriting standards specified by Federal National Mortgage Association (“Fannie Mae”), Massachusetts Housing Financing Authority (“MHFA”) and Federal Home Loan Bank (“FHLB”). All one-to four-family loans sold are on a non-recourse basis. Historically, in such instances, our loans have been typically sold to Fannie Mae and MHFA with servicing retained. Depending on interest rate levels at the time of any such sale, loans may be sold at either a net gain or a net loss. Additionally, we may not be able to reinvest the proceeds from any future loan sales at interest rates comparable to the interest rates on the loans that are sold. Reinvestment in loans with lower interest rates would result in lower interest income on the reinvested proceeds compared to the interest income previously generated by the loans that were sold.

The Company was servicing loans sold in the amount of $87.4 million and $98.2 million as of December 31, 2013 and 2012, respectively. Loan servicing includes collecting and remitting loan payments, accounting for principal and interest, contacting delinquent mortgagors, supervising foreclosures and property dispositions in the event of unremedied defaults, making certain insurance and tax payments on behalf of the borrowers and generally administering the loans. The balance of mortgage servicing rights to these loans was insignificant as of December 31, 2013 and 2012.

From time to time, we will also purchase loans. Other than the loans acquired during the acquisition of New England Bank in 2012, there were no loans purchased during 2013 or 2012.

From time to time, we will also participate in loans, sometimes as the “lead lender.” Whether we are the lead lender or not, we underwrite our participation portion of the loans according to our own underwriting criteria and procedures. At December 31, 2013, we had $90.7 million in loan participation interests in which we were the lead bank after $81.0 million of participations sold, and $58.9 million in loan participations in which we were not the lead bank.

The following table shows our loan originations, purchases, sales and repayment activities for the years indicated.


	Years Ended December 31,
	2013		2012		2011
	(In thousands)
Total loans at beginning of period	$	1,816,076	$	1,121,879	$	1,074,111

Loan originations:
Residential mortgages		126,369		110,748		93,959
Commercial mortgages		120,901		115,681		68,504
Construction (1)		120,972		29,115		22,147
Home equity		55,296		52,343		35,222
Commercial and industrial		138,859		134,265		57,235
Automobile		1,791		2,588		2,626
Other consumer		688		692		481

Total loans originated		564,876		445,432		280,174
Loans acquired from NEBS at fair value		-		553,983		-
Deductions:
Principal loan repayments		450,654		294,260		226,610
Loan sales		8,130		17,548		11,214
Decrease (increase) due to other items (2)		40,329		(6,590)		(5,418)

Total deductions		499,113		305,218		232,406

Net loan activity		65,763		694,197		47,768

Total loans at end of period	$	1,881,839	$	1,816,076	$	1,121,879

(1)	Includes $118,338, $27,235 and $21,022 of commercial construction loans for the years ended December 31, 2013, 2012 and 2011, respectively. Construction loans for the 2013 period include $81,122 in unadvanced funds.

(2)	Includes additional disbursements on home equity and lines of credit, participation loans serviced for others, minor changes and other activity on loans previously originated.

Loan Approval Procedures and Authority. United Bank’s lending activities follow written, non-discriminatory underwriting standards and loan origination procedures established by United Bank’s Board of Directors. The loan approval process is intended to assess the borrower’s ability to repay the loan, the viability of the loan and the adequacy of the value of the property that will secure the loan. To assess the borrower’s ability to repay, we review the employment and credit history and information on the historical and projected income and expenses of borrowers.

United Bank’s policies and loan approval limits are established by the Board of Directors. The Board of Directors has delegated authority to United Bank’s Chief Lending Officer to review and assign lending authorities to certain individuals of United Bank (ranging from senior management to senior loan underwriter) (the “Designated Individuals”) to consider and approve loans within their designated authority. In addition the Board has delegated authority at the request of the Chief Lending Officer to an Officers’ Loan Committee comprising the Chief Executive Officer, Chief Lending Officer, EVP of Commercial Banking, Chief Credit Officer and SVP of Risk Management. Loans in amounts above the authorized limits of the Officers’ Loan Committee and loans outside of the designated authority of the Officers’ Loan Committee require the approval of United Bank’s Directors’ Loan Committee. The Directors’ Loan Committee consists of four of our directors, including our Chief Executive Officer. All loans that are approved by the Designated Individuals or the Officers’ Loan Committee are still reviewed and ratified by the Directors’ Loan Committee and the Board of Directors on a monthly basis.

All residential mortgage loans (one- to four-family loans, home equity loans, home equity lines of credit, and residential construction loans) may be approved by certain of the Designated Individuals in amounts

up to the annually adjusted Fannie Mae and Federal Home Loan Mortgage Corporation (“Freddie Mac”) secondary market conforming loan limits (“Conforming Loans”). Residential mortgage loans in excess of the Conforming Loan limit and up to $1.0 million may be approved by any two of either United Bank’s Chief Executive Officer, Chief Financial Officer or Senior Vice President of Retail Lending. Residential loans in excess of $1.0 million must be approved by any two of the senior executive officers listed above and United Bank’s Officers’ Loan Committee.

All commercial real estate, commercial construction loans and commercial and industrial loans in amounts up to $1.0 million may be approved by certain of the Designated Individuals. All such loans in excess of $1.0 million, or additional extensions of credit to existing commercial borrowers that result in liability in excess of $1.0 million, must be approved by United Bank’s Officers’ Loan Committee. All home equity loans and home equity lines of credit up to $500,000 may be approved by certain of the Designated Individuals. All home equity loans and home equity lines of credit in excess of $500,000 must be approved by the Officers’ Loan Committee. All loans in excess of $2.0 million, or additional extensions of credit to existing commercial borrowers that result in liability in excess of $2.0 million, must also be approved by United Bank’s Directors’ Loan Committee.

All consumer loans in amounts up to $100,000 may be approved by certain of the Designated Individuals. All consumer loans in excess of $100,000 must be approved by the Loan Committee.

We generally require appraisals of all real property securing loans, except for home equity loans and equity lines of credit, in which case we may use the assessed tax value of the property securing such loans. Appraisals are performed by independent licensed appraisers. All appraisers are approved by the Directors’ Loan Committee annually. We require fire and extended coverage insurance in amounts at least equal to the principal amount of the loan.

Non-performing and Problem Assets

Asset Quality Process. Our internal review process involves an ongoing evaluation of credit risk and risk ratings. The Account Officers, with the assistance of the Credit Analysts, are primarily responsible for the initial risk rating assignment. Secondary responsibility rests with the Chief Lending Officer, the SVP of Credit Administration and the Chief Credit Officer, all of whom are responsible for the accuracy of the risk rating system. Loans are graded from “pass” to “loss,” depending on credit quality, with “pass” representing loans that are fully satisfactory as additions to our portfolio. We engage independent loan review consultants who provided four on-site reviews of our commercial portfolio during 2013. Three of the reviews focused on the regional lending centers of Worcester, West Springfield and Connecticut with the fourth review focused on Watch List credits and changes to the Watch List of $500,000 or greater. All loan relationships and all criticized relationships in excess of $1.0 million were reviewed by the third party consultants.

We initiate collection efforts when a loan becomes ten days past due with system-generated reminder notices. Subsequent late charge and delinquent notices are issued and the account is monitored on a regular basis thereafter. Personal, direct contact with the borrower is attempted early in the collection process as a courtesy reminder and later to determine the reason for the delinquency and to safeguard our collateral. When a loan is more than 60 days past due, the credit file is reviewed and, if deemed necessary, information is updated or confirmed and collateral re-evaluated. We make every effort to contact the borrower and develop a plan of repayment to cure the delinquency. A summary report of all loans 30 days or more past due is reported to the Board of Directors monthly. If no repayment plan is in process, the file is referred to counsel for the commencement of foreclosure or other collection efforts.

Loans are generally placed on non-accrual status when they are 90 days or more delinquent. When loans are placed on a non-accrual status, unpaid accrued interest is fully reversed.

Non-Performing Assets. The table below sets forth the amounts and categories of our non-performing assets at the dates indicated. There were no loans 90 days or more past due and still accruing interest as of the dates indicated.


	At December 31,
	2013			2012			2011			2010			2009
	(Dollars in thousands)
Non-accrual loans:
Residential mortgages	$	3,212		$	2,970		$	1,417		$	1,036		$	1,190
Commercial mortgages		5,899			5,092			2,124			3,256			10,717
Construction		279			349			330			410			3,280
Home equity		1,157			137			56			60			492
Commercial and industrial		2,431			5,538			2,641			2,885			571
Automobile		-			-			-			-			4
Other consumer		64			120			163			55			33

Total		13,042			14,206			6,731			7,702			16,287
Non-accrual troubled debt restructures:
Commercial mortgages		2,741	⁽¹⁾		504	⁽¹⁾		860	⁽¹⁾		860	⁽¹⁾		-
Construction		-			-			-			872	⁽²⁾		-
Commercial and industrial		232	⁽³⁾		-			863	⁽³⁾

Total		2,973			504			1,723			1,732			-

Total non-accrual loans		16,015			14,710			8,454			9,434			16,287

Other non-performing assets:
Other real estate owned		2,451			2,578			2,054			1,536			1,545
Other non-performing assets		69			52			69			-			-

Total		2,520			2,630			2,123			1,536			1,545

Total non-performing assets	$	18,535		$	17,340		$	10,577		$	10,970		$	17,832

Accruing troubled debt restructures:
Commercial mortgages	$	1,528	^(4, 5)	$	2,066	^(4, 5)	$	257	⁽⁵⁾	$	3,473	⁽⁶⁾	$	-
Construction		-			591	^(2, 4)		872	⁽²⁾		-			-
Commercial and industrial		2,851	^(3, 4)		1,103	^(3, 4)		-			-			-

Total	$	4,379		$	3,760		$	1,129		$	3,473		$	—


Ratios:
Total non-accrual loans to total loans		0.85	%		0.81	%		0.75	%		0.88	%		1.45%
Total non-performing assets to total assets		0.75	%		0.72	%		0.65	%		0.69	%		1.16%
Allowance for loan losses to non-performing loans		83.75	%⁽⁷⁾		82.18	%⁽⁷⁾		131.68	%		105.86	%⁽⁷⁾		56.36%

(1)

Includes two troubled debt restructure commercial mortgage loans which were restructured in the fourth quarter of 2013. Represented in the previous periods is an $860,000 troubled debt restructure commercial mortgage loan which was restructured in the second quarter of 2010 and subsequently, in the fourth quarter of 2012, $356,000 was charged off. The remainder of this loan was paid off with an additional recovery of $60,000 during the fourth quarter of 2013. There were no additional commitments to this borrower.

(2)

Includes an $872,000 (in 2010) and $947,000 (in 2012) troubled debt restructure construction loan which was restructured in the fourth quarter of 2010, returned to accrual status within the fourth quarter of 2011 as the customer has been current on the new payments for six months and recieved a principle increase in the first quarter of 2012. There were no additional commitments to this borrower.

(3)

Includes (in 2013) a $232,000 troubled debt restructure commercial and industrial loan which was restructured in the fourth quarter of 2013 and an $890,000 and $459,000 troubled debt restructure commercial and industrial loans which were restructured in the first quarter of 2013 and returned to accrual status in the second quarter of 2013 and a $400,000 troubled debt restructure commercial and industrial loan which was restructured in the second quarter of 2013 and is accruing as the customer has remained current on the new payments. The 2011 period includes an $863,000 troubled debt restructure commercial and industrial loan which was restructured in the second quarter of 2011 and returned to accrual status in the first quarter of 2012. There were no additional commitments to these borrowers.

(4)

Includes (in 2013) four troubled debt restructured loans totaling $1.1 million by one borrower with three commercial mortgage loans and one commercial and industrial loan. In the 2012 period these loans, including another borrower with two construction loans totaling $1.7 million, were restructured in the first quarter of 2012 and are accruing as the customers have remained current on the new payments.

(5)

Includes a commercial mortgage loan totaling $264,000 (in 2013) and $248,000 (in 2012) which was restructured in the first quarter of 2011 and was returned to accrual status at September 30, 2011 as the customer has been current on the new payments for six months and received a principle increase in the third quarter of 2013.

(6)	Represents a commercial mortgage loan which was restructured in the first quarter of 2010 and was returned to accrual status at September 30, 2010 as the customer has been current on the new payments for six months.

(7)

Exclusive of the $7.4 million and $7.0 million in non-performing loans acquired in the acquisition of NEBS at December 31, 2013 and 2012, respectively, and $163,000 and $3.3 million in non-performing loans acquired in the acquisition of CNB Financial at December 2010 and 2009, respectively, allowance for loan losses as a percent of non-performing loans would have been 155.33%, 157.72%, 107.72% and 70.44%, respectively. This is a non-GAAP financial measure. It is not a substitute for a GAAP measure and should only be considered in conjunction with the Company’s GAAP financial information. These non-GAAP financial measures provide investors with more detailed information that is useful in understanding our financial performance and condition.

As noted in the above table, non-accrual loans amounted to approximately $16.0 million and $14.7 million at December 31, 2013 and 2012, respectively. The $1.3 million increase in total non-accrual loans from December 31, 2012 to December 31, 2013 was primarily due to increases of $1.0 million in home equity loans, $807,000 in commercial real estate loans and $242,000 in residential mortgages, partially offset by a decrease of $3.1 million in commercial and industrial loans. The non-accrual loan total for December 31, 2013 included three troubled debt restructures: a $2.2 million commercial real estate loan, a $231,000 commercial and industrial loan and a $557,000 commercial real estate loan. All three loans were acquired from New England Bancshares. The non-accrual loan total for December 31, 2012 includes a troubled debt restructure commercial real estate loan for $860,000 which was impaired at March 31, 2010, restructured during the second quarter of 2010 and subsequently, in the fourth quarter of 2012, $356,000 was charged off. The non-accrual loan total for December 31, 2011 includes two troubled debt restructure loans: an $860,000 commercial real estate loan which was impaired at March 31, 2010 and was restructured during the second quarter of 2010 and a troubled debt restructure commercial and industrial loan for $863,000 which was restructured in the second quarter of 2011. The $980,000 decrease in total non-accrual loans from December 31, 2010 to December 31, 2011 was mainly due to decreases of $1.1 million in commercial mortgages and $952,000 in construction loans, offset by increases of $619,000 in commercial and industrial loans and $381,000 in residential mortgages. The non-accrual loan total for December 31, 2010 includes two troubled debt restructure loans: an $860,000 commercial real estate loan which was impaired at March 31, 2010 and was restructured during the second quarter of 2010 and a troubled debt restructure construction loan for $872,000 which was restructured in the fourth quarter of 2010. The non-accrual loan total for December 31, 2009 includes a $3.5 million commercial real estate loan which was impaired at December 31, 2009 and was restructured during the first quarter of 2010. This loan was classified as a troubled debt restructure and was placed on non-accrual status as of March 31, 2010. As of September 30, 2010, this loan was returned to accruing status as the customer has been current on the revised payment structure for more than six months.

Each of the Company’s non-performing assets has an active workout plan in place. Additional interest income of approximately $858,000, $1.3 million, $539,000, $363,000 and $281,000, respectively, would have been recorded during the years ended December 31, 2013, 2012, 2011, 2010 and 2009, respectively, if the loans had performed in accordance with their original terms. The Company recognized interest income on a cash basis on these loans of $392,000, $44,000, $288,000, $120,000 and $0, respectively, in the years ended December 31, 2013, 2012, 2011, 2010 and 2009, respectively.

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. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

At December 31, 2013 and 2012, the recorded investment in impaired loans was $14.1 million and $17.4 million, respectively. A loan reserve of $127,000 and $32,000 was established on $1.2 million and $32,000 of the impaired loans at December 31, 2013 and 2012, respectively. During the year ended December 31, 2012, in accordance with the “Loans and Debt Securities Acquired with Deteriorating Credit Quality” section of the Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) for “Receivables” (Topic 310), the Company recorded a non-accretable credit discount of $2.9 million related to impaired loans of $9.9 million acquired from NEBS. In 2009, the Company recorded a non-accretable credit discount of $2.3 million related to impaired loans of $5.2 million acquired from CNB Financial. The average balance of impaired loans was $13.5 million, $9.6 million, and $10.7 million for the years ended December 31, 2013, 2012 and 2011, respectively. Interest income recognized on impaired loans during 2013, 2012 and 2011 was not significant.

Delinquent Loans. The following table sets forth our loan delinquencies 60 days and greater by type and amount at the dates indicated.


	Loans Delinquent For
	60 - 89 Days				90 Days and Over					Total
	Number		Amount		Number		Amount			Number		Amount
	(Dollars in thousands)
At December 31, 2013
Residential mortgages		21	$	2,525		19	$	3,180			40	$	5,705
Commercial mortgage		8		2,841		18		4,909			26		7,750
Construction		1		116		1		279			2		395
Home equity		2		239		8		1,157			10		1,396
Commercial and industrial		11		753		22		2,431			33		3,184
Other consumer		2		129		2		64			4		193

Total		45	$	6,603		70	$	12,020			115	$	18,623

At December 31, 2012
Residential mortgages		15	$	2,450		22	$	2,615			37	$	5,065
Commercial mortgage		7		1,136		24		5,351			31		6,487
Home equity		3		161		5		137			8		298
Commercial and industrial		9		1,155		13		4,442			22		5,597
Other consumer		2		35		4		120			6		155

Total		36	$	4,937		68	$	12,665			104	$	17,602

At December 31, 2011
Residential mortgages		15	$	1,984		7	$	1,417			22	$	3,401
Commercial mortgage		5		1,028		9		2,131	⁽¹⁾		14		3,159
Construction		-		-		2		330			2		330
Home equity		-		-		1		56			1		56
Commercial and industrial		7		205		10		2,728			17		2,933
Other consumer		1		1		3		163			4		164

Total		28	$	3,218		32	$	6,825			60	$	10,043

At December 31, 2010
Residential mortgages		10	$	1,001		5	$	1,036			15	$	2,037
Commercial mortgage		6		1,088		13		3,256	⁽¹⁾		19		4,344
Construction		-		-		3		410	⁽²⁾		3		410
Home equity		3		223		1		60			4		283
Commercial and industrial		3		122		13		2,885			16		3,007
Automobile		1		5		-		-			1		5
Other consumer		1		3		2		55			3		58

Total		24	$	2,442		37	$	7,702			61	$	10,144

At December 31, 2009
Residential mortgages		13	$	1,355		5	$	1,190			18	$	2,545
Commercial mortgages		8		2,298		13		10,717			21		13,015
Construction		3		424		5		3,280			8		3,704
Home equity		3		157		4		492			7		649
Commercial and industrial		3		54		15		571			18		625
Automobile		-		-		3		4			3		4
Other consumer		3		11		1		33			4		44

Total		33	$	4,299		46	$	16,287			79	$	20,586

(1)

Excludes an $860,000 commercial mortgage loan which was restructured in the second quarter of 2010 and was placed on non-accrual status. Although this troubled debt restructure loan is reported as a non-performing asset, the borrower is delinquent for less than 60 days.

(2)

Excludes an $872,000 construction loan which was restructured in the fourth quarter of 2010 and was placed on non-accrual status. Although this loan is reported as a non-performing asset, the borrower is current with respect to the restructured payment terms.

Other Real Estate Owned. Other real estate acquired by us as a result of foreclosure or by deed in lieu of foreclosure is classified as real estate owned until sold. When property is acquired it is recorded at the lower of cost or fair market value at the date of foreclosure, establishing a new cost basis. Holding costs and declines in fair value after acquisition are expensed. At December 31, 2013, we had $2.5 million of real estate owned.

Classified Assets. Office of the Comptroller of the Currency regulations provide that loans and other assets of lesser quality should be classified as “substandard,” “doubtful” or “loss” assets. An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that we will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. We classify an asset as “special mention” if the asset has a potential weakness that warrants management’s close attention. While such assets are not impaired, management has concluded that if the potential weakness in the asset is not addressed, the value of the asset may deteriorate, adversely affecting the repayment of the asset.

We establish general allowances for loan losses in an amount deemed prudent by management for loans classified substandard or doubtful, as well as for other potential problem loans. General allowances represent loss allowances which have been established to recognize the inherent losses associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. When we classify problem assets as “loss,” we are required either to establish a specific allowance for losses equal to 100% of the amount of the asset so classified or to charge off such amount. Our determination as to the classification of our assets and the amount of our valuation allowances is subject to review by the Office of the Comptroller of the Currency, which can order the establishment of additional general or specific loss allowances.

The following table shows the aggregate amounts of our classified assets at the dates indicated for loans and foreclosed assets. The total amount of loans in the table below at December 31, 2013 includes twenty-five relationships which exceed $1 million and represent 45.5% of the classified loans. During 2013, several large relationships aggregating $5.6 million were paid in full. Of the $2.5 million in other real estate owned, two properties having a book value of $686,000 are under purchase and sales agreements and are slated to close in the first quarter of 2014.


	At December 31,
	2013		2012
	(In thousands)
Classified Loans:
Special mention	$	31,788	$	45,512
Substandard		53,268		46,693
Doubtful		65		653
Loss		-		-

Total classified loans		85,121		92,858
Foreclosed Assets:
Other real estate owned		2,451		2,578
Other non-performing assets		69		52

Total classified assets	$	87,641	$	95,488

The loan portfolio is reviewed on a regular basis to determine whether any loans require classification in accordance with applicable regulations. Not all classified assets constitute non-performing assets.

A loan is classified as a troubled debt restructuring if the Company, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower that it would not otherwise consider. This usually includes a modification of loan terms, such as a reduction of the interest rate to below market terms, capitalizing past due interest or extending the maturity date and possibly a partial forgiveness of debt. Interest income on restructured loans is accrued after the borrower demonstrates the ability to pay under the restructured terms through a sustained period of repayment performance, which is generally six months.

Allowance for Loan Losses

Our allowance for loan losses is maintained at a level necessary to absorb loan losses that are both probable and reasonably estimable. Management, in determining the allowance for loan losses, considers the losses inherent in our loan portfolio and changes in the nature and volume of loan activities, delinquent and classified loans and charge-offs, along with the general economic and real estate market conditions. A description of our methodology in establishing our allowance for loan losses is set forth in under Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Critical Accounting Policies—Allowance for Loan Losses.” The allowance for loan losses as of December 31, 2013 was maintained at a level that represents management’s best estimate of losses inherent in the loan portfolio. However, this analysis process is inherently subjective, as it requires us to make estimates that are susceptible to revisions as more information becomes available. Although we believe that we have established the allowance at levels to absorb probable and estimable losses, future additions or deductions may be necessary if economic or other conditions in the future differ from the current environment. In addition, as an integral part of their examination process, the Office of the Comptroller of the Currency has authority to periodically review our allowance for loan losses. Such agencies may require that we recognize additions to the allowance based on their judgments of information available to them at the time of their examination.

Allowance for Loan Losses. The following table sets forth activity in our allowance for loan losses for the years indicated.


	At or For the Year Ended December 31,
	2013			2012			2011			2010			2009
	(Dollars in thousands)
Balance at beginning of period	$	12,089		$	11,132		$	9,987		$	9,180		$	8,250
Charge-offs:
Residential mortgages		389			246			139			1			69
Commercial mortgages		1,471			922			589			529			1,399
Construction		-			127			78			206			135
Home equity		89			225			24			115			-
Commercial and industrial		962			765			1,556			766			545
Automobile		-			9			-			4			5
Other consumer		67			70			6			16			10

Total charge-offs		2,978			2,364			2,392			1,637			2,163
Recoveries:
Residential mortgages		60			-			-			-			1
Commercial mortgages		90			45			52			96			5
Construction		-			1			3			-			2
Home equity		6			-			-			-			-
Commercial and industrial		25			127			235			63			85
Automobile		-			7			2			-			2
Other consumer		29			2			3			-			-

Total recoveries		210			182			295			159			95
Net charge-offs		(2,768	)		(2,182	)		(2,097	)		(1,478	)		(2,068	)
Provision for loan losses		4,092			3,139			3,242			2,285			2,998

Balance at end of period	$	13,413		$	12,089		$	11,132		$	9,987		$	9,180

Ratios:
Net charge-offs to average loans outstanding		0.15	%		0.18	%		0.19	%		0.13	%		0.23	%
Allowance for loan losses to non-performing loans at end of period		83.75	%⁽¹⁾		82.18	%⁽¹⁾		131.68	%		105.86	%⁽¹⁾		56.36	%⁽¹⁾
Allowance for loan losses to total loans at end of period		0.71	%⁽²⁾		0.67	%⁽²⁾		0.99	%⁽²⁾		0.93	%⁽²⁾		0.82	%⁽²⁾

(1)

Exclusive of the $7.4 million, $7.0 million, $163,000 and $3.3 million in non-performing acquired loans at December 31, 2013, 2012, 2010 and 2009, respectively, allowance for loan losses as a percent of non-performing loans would have been 155.33%, 157.72%, 107.72% and 70.44%, respectively. This is a non-GAAP financial measure. It is not a substitute for a GAAP measure and should only be considered in conjunction with the Company’s GAAP financial information. These non-GAAP financial measures provide investors with more detailed information that is useful in understanding our financial performance and condition.

(2)

Exclusive of the $523.9 million, $659.6 million, $148.9 million, $209.8 million and $242.9 million in acquired loans and $4.6 million, $5.0 million, $19.1 million, $21.4 million and $22.7 million in loans purchased from other financial institutions, allowance for loan losses as a percent of total loans would have been 0.99%, 1.05%, 1.17%, 1.18% and 1.07% for the years ended December 31, 2013, 2012, 2011, 2010 and 2009, respectively. This is a non-GAAP financial measure. It is not a substitute for a GAAP measure and should only be considered in conjunction with the Company’s GAAP financial information. These non-GAAP financial measures provide investors with more detailed information that is useful in understanding our financial performance and condition.

Allocation of Allowance for Loan Losses. The following table sets forth the allowance for loan losses allocated by loan category, the total loan balances by category, and the percent of loans in each category to total loans at the dates indicated. The allowance for loan losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories.


	At December 31,
	2013						2012						2011
	Amount		Percent of Allowance to Total Allowance		Percent of Loans in Category to Total Loans		Amount		Percent of Allowance to Total Allowance		Percent of Loans in Category to Total Loans		Amount		Percent of Allowance to Total Allowance		Percent of Loans in Category to Total Loans
	(Dollars in thousands)
At end of period allocated to:
Residential mortgages	$	805		6.00%		24.80%	$	602		4.98%		24.33%	$	666		5.98%		28.06%
Commercial mortgages		6,841		51.00%		45.84%		6,203		51.31%		44.86%		5,572		50.05%		40.13%
Construction		1,095		8.16%		3.34%		710		5.87%		2.90%		860		7.73%		2.70%
Home equity		374		2.79%		9.54%		383		3.17%		9.86%		474		4.26%		12.08%
Commercial and industrial		3,709		27.65%		15.57%		3,468		28.69%		16.86%		3,446		30.96%		15.69%
Automobile		30		0.22%		0.25%		49		0.41%		0.36%		60		0.54%		0.70%
Other consumer		33		0.25%		0.66%		34		0.28%		0.83%		54		0.48%		0.64%
Unallocated		526		3.92%		-		640		5.29%		-		-		-		-

Total allowance	$	13,413		100.00%		100.00%	$	12,089		100.00%		100.00%	$	11,132		100.00%		100.00%


	At December 31,
	2010						2009
	Amount		Percent of Allowance to Total Allowance		Percent of Loans in Category to Total Loans		Amount		Percent of Allowance to Total Allowance		Percent of Loans in Category to Total Loans
	(Dollars in thousands)
At end of period allocated to:
Residential mortgages	$	740		7.41%		27.53%	$	802		8.74%		30.59%
Commercial mortgages		5,000		50.07%		39.85%		4,300		46.84%		36.51%
Construction		668		6.69%		2.57%		1,194		13.01%		4.35%
Home equity		623		6.24%		12.87%		621		6.76%		12.24%
Commercial and industrial		2,801		28.05%		15.39%		2,051		22.34%		14.21%
Automobile		90		0.90%		1.03%		110		1.20%		1.31%
Other consumer		65		0.64%		0.76%		102		1.11%		0.79%

Total allowance	$	9,987		100.00%		100.00%	$	9,180		100.00%		100.00%

Investments

The investment policy is reviewed annually by management and any changes to the policy are recommended to and subject to the approval of the Board of Directors. Authority to make investments under the approved investment policy guidelines is delegated to appropriate officers. While general investment strategies are developed and authorized by the Board of Directors, the execution of specific actions primarily rests with United Bank’s Chief Financial Officer. He is both responsible for ensuring that the guidelines and requirements included in the investment policy are followed and that all securities are considered prudent for investment. He and United Bank’s Treasurer or his/her designee, under his/her direction is authorized to execute investment transactions (purchases and sales) up to $10 million per transaction without prior approval and within the scope of the established investment policy. All investment transactions are reviewed and ratified or approved (as the case may be) at regularly scheduled meetings of the Board of Directors. Any investment that, subsequent to its purchase, fails to meet the guidelines of the policy is reported to the Board of Directors at its next meeting where the Board decides whether to hold or sell the investment.

The Company’s Board of Directors has adopted an investment policy that is substantially identical to the Bank’s policy. Any references herein to the “Bank” also apply to the Company.

Federally chartered savings banks have authority to invest in various types of assets, including U.S. Treasury obligations, securities of various federal agencies, mortgage-backed securities, certain certificates of deposit of insured financial institutions, overnight and short-term loans to other banks, corporate debt instruments, and Fannie Mae and Freddie Mac equity securities. United Financial Bancorp, Inc., as a savings and loan holding company, may invest in equity securities subject to certain limitations.

The investment policy requires that all securities transactions be conducted in a safe and sound manner. Investment decisions must be based upon a thorough analysis of each security instrument to determine its quality and inherent risks, fit within United Bank’s overall asset/liability management objectives, effect on its risk-based capital measurement and prospects for yield and/or appreciation. The investment policy provides that United Bank may invest in U.S. Treasury obligations, U.S. and state agency securities, mortgage-backed securities, corporate debt securities and other conservative investment opportunities.

Securities can be classified as held-to-maturity or available-for-sale at the date of purchase.

Mortgage-Backed Securities. We purchase mortgage-backed securities insured or guaranteed by Fannie Mae, Freddie Mac or Government National Mortgage Association (“Ginnie Mae”). We invest in mortgage-backed securities to achieve positive interest rate spreads with minimal administrative expense, and to lower our credit risk as a result of the guarantees provided by Freddie Mac, Fannie Mae or Ginnie Mae. Our investment policy also authorizes the investment in collateralized mortgage obligations (“CMOs”), also insured or issued by Freddie Mac, Fannie Mae and Ginnie Mae.

Mortgage-backed securities are created by the pooling of mortgages and the issuance of a security with an interest rate that is slightly less than the interest rate on the underlying mortgages. Mortgage-backed securities typically represent a participation interest in a pool of single-family or multi-family mortgages, although we focus our investments on mortgage-backed securities backed by one- to four-family mortgages. The issuers of such securities (generally U.S. government agencies and government sponsored enterprises, including Fannie Mae, Freddie Mac and Ginnie Mae) pool and resell the participation interests in the form of securities to investors such as us, and guarantee the payment of principal and interest to investors. Mortgage-backed securities generally yield less than the loans that underlie such securities because of the cost of payment guarantees and credit enhancements. However, mortgage-backed securities are usually more liquid than individual mortgage loans and may be used to collateralize our specific liabilities and obligations.

At December 31, 2013, our mortgage-backed securities totaled $315.2 million, or 12.7% of total assets. Our mortgage-backed securities at December 31, 2013 were classified as both available-for-sale and

held-to-maturity. At December 31, 2013, 18.5% of the mortgage-backed securities were backed by adjustable-rate mortgage loans and 81.5% were backed by fixed-rate mortgage loans. The mortgage-backed securities portfolio had a weighted average yield of 2.54% at December 31, 2013. The estimated fair value of our mortgage-backed securities at December 31, 2013 was $315.6 million, which was $814,000 more than the amortized cost of $314.7 million. Private label CMOs are included in our mortgage-backed securities portfolio as a result of the acquisitions of NEBS and CNB Financial. At December 31, 2013, private label CMOs had an estimated fair value of $51,000 and an amortized cost of $50,000, representing 0.02% of total mortgage-backed securities and had a weighted average yield of 6.39%. Investments in mortgage-backed securities involve a risk that actual prepayments may differ from estimated prepayments over the life of the security, which may require adjustments to the amortization of any premium or accretion of any discount relating to such instruments thereby changing the net yield on such securities. There is also reinvestment risk associated with the cash flows from such securities or if such securities are redeemed by the issuer. In addition, the market value of such securities may be adversely affected by changes in interest rates.

Government-Sponsored Enterprises. At December 31, 2013, our Government-Sponsored Enterprises securities portfolio totaled $1.9 million, all of which was classified as available-for-sale. While these securities generally provide lower yields than other investments in our securities investment portfolio, we maintain these investments, to the extent appropriate, for liquidity purposes, as collateral for borrowings and for prepayment protection.

Corporate Bonds. At December 31, 2013, our corporate bond portfolio totaled $1.6 million, all of which was classified as available-for-sale, consisting of trust preferred securities issued by financial services companies. Although corporate bonds may offer higher yields than U.S. Treasury or agency securities of comparable duration, corporate bonds also have a higher risk of default due to possible adverse changes in the credit worthiness of the issuer. In order to mitigate this risk, our investment policy requires that at the time of purchase corporate debt obligations be rated in one of the four highest categories by a nationally recognized rating service.

Municipal Obligations and Industrial Revenue Bonds. Municipal obligations are securities issued by states, counties and municipalities or their agencies. The industrial revenue bonds in our portfolio are issued by the Massachusetts Development Finance Agency, an independent public authority created by Massachusetts to assist nonprofit organizations to borrow funds through tax-exempt bond issuances. Our investment policy requires that the municipal obligations be rated as investment grade at the time of purchase. At December 31, 2013, our municipal obligations portfolio consisted of both available-for-sale and held-to-maturity securities.

Investment Securities Portfolio. The following table sets forth the amortized cost and fair value of our securities portfolio at the dates indicated.


	At December 31,
	2013				2012				2011
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
		(In thousands)
Investment securities
Available-for-sale:
Government-sponsored enterprises	$	2,099	$	1,851	$	3,234	$	3,233	$	187	$	192
Government-sponsored and government-guaranteed mortgage- backed securities		236,004		236,454		248,370		257,762		198,446		209,493
Private label mortgage-backed securities		-		-		2,568		2,566		2,127		2,178
Corporate bonds		1,125		1,606		1,290		1,934		1,453		1,566
Municipal bonds		25,902		24,718		28,713		28,827		7,759		8,384

Total available-for-sale	$	265,130	$	264,629	$	284,175	$	294,322	$	209,972	$	221,813

Held-to-maturity:
Government-sponsored and government-guaranteed mortgage-backed securities	$	78,686	$	79,049	$	57,986	$	60,200	$	89,955	$	91,949
Private label mortgage-backed securities		50		51		79		81		163		167
Industrial revenue bonds		26,361		26,361		18,847		18,847		19,000		19,000
State of Israel bonds		175		175		150		150		150		150
Municipal bonds		5,913		6,079		5,924		6,396		6,629		7,045

Total held-to-maturity	$	111,185	$	111,715	$	82,986	$	85,674	$	115,897	$	118,311

At December 31, 2013, the Company did not own any securities, other than government-sponsored and government-guaranteed mortgage-backed securities, that had an aggregate book value in excess of 10% of our total capital at that date.

Portfolio Maturities and Yields. The composition and maturities of the investment securities portfolio at December 31, 2013 are summarized in the following table. Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur. Equity securities do not have contractual maturities and are excluded from this table. Weighted average yields are not presented on a tax-equivalent basis.


	One Year or Less				More than One Year through Five Years				More than Five Years through Ten Years				More than Ten Years				Total Securities
	Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield		Fair Value
	(Dollars in thousands)
Investment securities
Available-for-sale:
Government-sponsored enterprises	$	-		0.00%	$	-		0.00%	$	500		1.30%	$	1,599		2.77%	$	2,099		2.42%	$	1,851
Government-sponsored and government-guaranteed mortgage- backed securities		37		3.74%		6,576		3.63%		27,613		2.89%		201,778		2.50%		236,004		2.58%		236,454
Corporate bonds		-		0.00%		-		0.00%		-		0.00%		1,125		5.57%		1,125		5.57%		1,606
Municipal bonds		-		0.00%		2,096		2.85%		15,370		2.66%		8,436		3.21%		25,902		2.85%		24,718

Total available-for-sale	$	37		3.74%	$	8,672		3.44%	$	43,483		2.79%	$	212,938		2.55%	$	265,130		2.62%	$	264,629

Held-to-maturity:
Government-sponsored and government-guaranteed mortgage- backed securities	$	-		0.00%	$	1,759		3.54%	$	26,246		2.11%	$	50,681		2.56%	$	78,686		2.43%	$	79,049
Private label mortgage-backed securities		-		0.00%		50		6.39%		-		0.00%		-		0.00%		50		6.39%		51
Industrial revenue bonds		-		0.00%		-		0.00%		-		0.00%		26,361		3.89%		26,361		3.89%		26,361
State of Israel bonds		125		1.02%		50		1.25%		-		0.00%		-		0.00%		175		1.09%		175
Municipal bonds		-		0.00%		760		3.85%		1,534		3.66%		3,619		4.22%		5,913		4.03%		6,079

Total held-to-maturity	$	125		1.02%	$	2,619		3.64%	$	27,780		2.20%	$	80,661		3.07%	$	111,185		2.86%	$	111,715

Sources of Funds

General. Deposits have traditionally been our primary source of funds for lending and investment activities. We also use borrowings, primarily Federal Home Loan Bank advances, to supplement cash flow needs, to lengthen the maturities of liabilities for interest rate risk management purposes and to manage the cost of funds. Other sources of funds are scheduled loan payments, investment maturities, loan prepayments, retained earnings and income on other earning assets. While scheduled loan payments and income on earning assets are relatively stable sources of funds, deposit inflows and outflows can vary widely and are influenced by prevailing interest rates, market conditions and levels of competition.

Deposits. Our deposits are generated primarily from residents and businesses within our primary market area. We offer a selection of deposit accounts, including demand accounts, NOW accounts, money market accounts, savings accounts, retirement accounts and certificates of deposit. Deposit account terms vary, with the principal differences being the minimum balance required, the amount of time the funds must remain on deposit and the interest rate.

Interest rates paid, maturity terms, service fees and withdrawal penalties are established on a periodic basis. Deposit rates and terms are based primarily on current operating strategies and market rates, liquidity requirements, rates paid by competitors and growth goals. We rely on personalized customer service, long-standing relationships with customers and an active marketing program to attract and retain deposits.

The flow of deposits is influenced significantly by general economic conditions, changes in money market and other prevailing interest rates, and competition. The variety of deposit accounts offered allows us to be competitive in obtaining funds and responding to changes in consumer demand. Based on experience, we believe that our deposits are relatively stable. However, the ability to attract and maintain deposits, and the rates paid on these deposits, have been and will continue to be significantly affected by market conditions. At December 31, 2013, $731.1 million, or 37.6% of our deposit accounts, were certificates of deposit, of which $428.1 million had maturities of one year or less.

The following table sets forth the distribution of total deposits by account type, at the dates indicated.


	At December 31,
	2013						2012						2011
	Balance (1)		Percent		Weighted Average Rate		Balance (1)		Percent		Weighted Average Rate		Balance (1)		Percent		Weighted Average Rate
	(Dollars in thousands)
Deposit type:
Demand	$	342,000		17.60%		- %	$	307,302		16.68%		- %	$	205,902		16.74%		- %
NOW		92,696		4.77%		0.20%		87,983		4.78%		0.32%		52,899		4.30%		0.35%
Savings		342,605		17.63%		0.25%		350,188		19.01%		0.39%		247,664		20.14%		0.60%
Money market		435,171		22.39%		0.34%		395,293		21.46%		0.42%		301,770		24.53%		0.59%
Certificates of deposit		731,052		37.61%		1.43%		701,115		38.07%		1.76%		421,737		34.29%		1.84%

Total deposits	$	1,943,524		100.00%		0.67%	$	1,841,881		100.00%		0.85%	$	1,229,972		100.00%		0.91%

(1)	Excludes the fair value adjustment balance of $3.0 million and $6.3 million recorded in connection with the acquisition of NEBS at December 31, 2013 and 2012, respectively, and $3,000 recorded in connection with the acquisition of CNB Financial at December 31, 2011.

As of December 31, 2013, the aggregate amount of outstanding certificates of deposit in amounts greater than or equal to $100,000 was approximately $406.4 million. The following table sets forth the maturity of those certificates as of December 31, 2013, in thousands.


Three months or less	$	69,852
Over three months through six months		66,025
Over six months through one year		96,051
Over one year to three years		123,702
Over three years		50,747

Total	$	406,377

Borrowings. Our borrowings consist of advances from the Federal Home Loan Bank of Boston, collateralized repurchase agreements with our customers and other financial institutions and subordinated debentures. As of December 31, 2013, we had Federal Home Loan Bank advances of $139.1 million, or 6.4% of total liabilities, with a weighted average maturity of 3.6 years and a weighted average rate of 1.85%. As a member of the Federal Home Loan Bank of Boston, we can currently borrow up to approximately $368.1 million from the Federal Home Loan Bank.

The following table summarizes information concerning balances and interest rates on our Federal Home Loan Bank advances at and for the periods indicated:

For the Years Ended December 31,

2013

2012

2011

(In thousands)

Balance at end of period

139,063

⁽¹⁾

140,603⁽²⁾

104,984⁽³⁾

Average amount outstanding during year

129,165

⁽¹⁾

107,668⁽²⁾

130,753⁽³⁾

Interest expense incurred during year

3,181

⁽¹⁾

3,869⁽²⁾

5,107⁽³⁾

Maximum amount outstanding at any month-end

160,461

⁽¹⁾

140,603⁽²⁾

150,840⁽³⁾

Average interest rate during the year

2.46%

⁽¹⁾

3.59%⁽²⁾

3.91%⁽³⁾

Weighted average interest rate on end of period balances

1.85%

2.51%

3.68%

(1)	Excludes the fair value adjustment balance of $600,000, an average balance of $771,000 and interest expense of $322,000 for December 31, 2013, recorded in connection with the acquisition of NEBS.

(2)	Excludes the fair value adjustment balance of $922,000, an average balance of $1.2 million and interest expense of $509,000 for December 31, 2012, recorded in connection with the acquisition of NEBS.

(3)	Excludes the fair value adjustment balance of $1.4 million, an average balance of $1.7 million and interest expense of $594,000 for December 31, 2011, recorded in connection with the acquisition of CNB Financial.

Securities sold under agreements to repurchase include funds borrowed from customers on an overnight basis. At December 31, 2013, the Company had $41.6 million of repurchase agreements outstanding with its customers at a weighted average rate of 0.33%. The following table summarizes our customer repurchase agreements at and for the periods shown:


	For the Years Ended December 31,
	2013			2012			2011
	(In thousands)
Balance at end of period	$	41,555		$	49,229		$	17,260
Average amount outstanding during year		40,587			22,077			18,408
Interest expense incurred during year		42			55			121
Maximum amount outstanding at any month-end		49,580			49,229			21,952
Average interest rate during the year		0.10	%		0.25	%		0.66	%
Weighted average interest rate on end of period balances		0.33	%		0.57	%		0.57	%

In addition, the Company had a total of $20.0 million in structured term repurchase agreements secured through another financial institution. The Company entered into a $10.0 million repurchase agreement in 2009 due to mature in 2019, is callable in 2014 and has a rate of 2.44%. The Company had previously entered into a $10.0 million repurchase agreement in 2008 due to mature in 2018, is callable on any interest payment date and has a rate of 2.73%. All of the repurchase agreements are secured by mortgage-backed securities issued by government sponsored enterprises.

The Company assumed subordinated debt as a result of the acquisition of CNB Financial in 2009 in the form of trust preferred securities issued through a private placement offering with a face amount of $7.7 million. The Company recorded a fair value acquisition discount of $2.4 million on November 30, 2009. The remaining unamortized discount was $1.8 million at December 31, 2013. This issue has a maturity date of March 15, 2036 and bears a floating rate of interest that reprices quarterly at the 3-month LIBOR rate plus 1.85%. The interest rate at December 31, 2013 was 2.09%. A special redemption provision allows the Company to redeem this issue at par on March 15, June 15, September 15, or December 15 of any year subsequent to March 15, 2011.

The Company assumed subordinated debt as a result of the acquisition of NEBS in 2012 in the form of trust preferred securities issued through a private placement offering with a face amount of $4.1 million. The subordinated debt bore a floating rate of interest that repriced quarterly at the 3-month LIBOR rate plus 1.90%. The interest rate at December 31, 2012 was 2.21%. The Company redeemed this issue at par on February 23, 2013.

The Company has unused borrowing capacity with the Federal Reserve Bank of approximately $60.8 million.

Subsidiary Activities

UCB Securities, Inc. is a wholly owned subsidiary of United Bank and was established in 1998 as a Massachusetts security corporation for the purpose of buying, selling and holding investment securities. The income earned on UCB Securities, Inc.’s investment securities is subject to a significantly lower rate of state tax than that assessed on income earned on investment securities maintained at United Bank. At December 31, 2013, UCB Securities, Inc. had total assets of $161.7 million, all of which were qualifying securities under the applicable regulations.

UCB Securities, Inc. II is a wholly owned subsidiary of United Bank and was established in 2010 as a Massachusetts security corporation for the purpose of buying, selling and holding investment securities. The income earned on UCB Securities, Inc. II’s investment securities is subject to a significantly lower rate of state tax than that assessed on income earned on investment securities maintained at United Bank. At December 31, 2013, UCB Securities, Inc. II had total assets of $69.5 million, all of which were qualifying securities under the applicable regulations.

UB Properties, LLC is a subsidiary of the Bank formed to hold real estate assets acquired through foreclosure. At December 31, 2013, UB Properties, LLC had total assets of $2.3 million.

VB REO, LLC is a subsidiary of the Bank formed to hold real estate assets acquired through foreclosure. At December 31, 2013, VB REO, LLC had total assets of $1.3 million.

United Wealth Management

United Bank, through its division, United Wealth Management, has a partnership with a registered broker-dealer, NFP Securities, Inc. In 2006, United Bank acquired Levine Financial Group in an effort to expand its customer base with increased opportunities to grow its market share and expand the financial services portion of business in the Northampton market. Together they offer United Bank customers a complete range of

non-deposit investment products and financial planning services, including mutual funds, debt, equity and government securities, insurance products, fixed and variable annuities, financial planning for individual and commercial customers and estate planning services. United Bank receives a portion of the commissions generated by United Wealth Management from sales to customers.

Expense and Tax Allocation Agreements

United Bank has entered into an agreement with the Company that generally provides that the Company will pay to United Bank, on a quarterly basis, fees for its use of United Bank’s premises, furniture, equipment and employees in an amount to be determined by the board of directors of the Company and United Bank. Such fees shall not be less than the fair market value received for such goods or services. In addition, the Company and United Bank entered into a tax allocation agreement as a result of their status as members of an affiliated group under the Internal Revenue Code. The tax allocation agreement generally provides that the Company will file consolidated federal tax income returns with United Bank and its subsidiaries. The tax allocation agreement also formalizes procedures for allocating the consolidated tax liability of the group among its members and establishes procedures for the future payments by United Bank to the Company for tax liabilities attributable to United Bank and its subsidiaries.

Personnel

As of December 31, 2013, we had 376 full-time employees and 43 part-time employees. Our employees are not represented by any collective bargaining group. Management believes that we have good relations with our employees.

SUPERVISION AND REGULATION

General

United Bank is subject to extensive regulation, examination and supervision by the Office of the Comptroller of the Currency as its primary federal regulator, and by the Federal Deposit Insurance Corporation, as the insurer of its deposits. United Bank’s deposits are insured up to applicable limits by the Deposit Insurance Fund of the Federal Deposit Insurance Corporation. United Bank also is a member of and owns stock in the Federal Home Loan Bank of Boston, which is one of the twelve regional banks in the Federal Home Loan Bank System. United Bank also is regulated to a lesser extent by the Board of Governors of the Federal Reserve System, governing reserves to be maintained against deposits and other matters. United Bank’s relationship with its depositors and borrowers also is regulated to a great extent by federal law and, to a much lesser extent, state law, especially in matters concerning the ownership of deposit accounts and the form and content of United Bank’s mortgage documents. United Bank must file reports with the Office of the Comptroller of the Currency concerning its activities and financial condition in addition to obtaining regulatory approvals before entering into certain transactions such as mergers with, or acquisitions of, other financial institutions. There are periodic examinations by the Office of the Comptroller of the Currency to evaluate United Bank’s safety and soundness and compliance with various regulatory requirements. This regulatory structure is intended primarily for the protection of the insurance fund and depositors. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of an adequate allowance for loan losses for regulatory purposes. Any change in such policies, whether by the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation or Congress, could have a material adverse impact on the Company and United Bank and their operations.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) made extensive changes to the regulation of financial institutions and their holding companies. Under the Dodd-Frank Act, the Office of Thrift Supervision was eliminated and responsibility for the supervision and regulation

of federal savings banks was transferred to the Office of the Comptroller of the Currency on July 21, 2011. The Office of the Comptroller of the Currency is the agency that is primarily responsible for the regulation and supervision of national banks. Additionally, on that date, responsibility for the regulation and supervision of savings and loan holding companies was transferred to the Board of Governors of the Federal Reserve System. Additionally, the Dodd-Frank Act created a Consumer Financial Protection Bureau as an independent bureau of the Federal Reserve Board. The Consumer Financial Protection Bureau assumed responsibility for the implementation of the federal financial consumer protection and fair lending laws and regulations and has authority to impose new requirements. However, institutions of less than $10 billion in assets, such as United Bank, will continue to be examined for compliance with consumer protection and fair lending laws and regulations by, and be subject to the enforcement authority of, their prudential regulators.

Certain of the regulatory requirements that are or will be applicable to United Bank and United Financial Bancorp are described below. This description of statutes and regulations is not intended to be a complete explanation of such statutes and regulations and their effects on United Bank and United Financial Bancorp and is qualified in its entirety by reference to the actual statutes and regulations.

Federal Banking Regulation

Business Activities. The activities of federal savings banks, such as United Bank, are governed by federal laws and regulations. Those laws and regulations delineate the nature and extent of the business activities in which federal savings banks may engage. In particular, certain lending authority for federal savings banks, e.g., commercial, non-residential real property loans and consumer loans, is limited to a specified percentage of the institution’s capital or assets.

The Dodd-Frank Act authorizes depository institutions to pay interest on business demand deposits. Depending upon competitive responses, that change could have an adverse impact on United Bank’s interest exposure.

Capital Requirements. Applicable capital regulations require savings associations to meet three minimum capital standards: a 1.5% tangible capital to total assets ratio; a 4% tier 1 capital to assets leverage ratio (3% for institutions receiving the highest rating on the CAMELS financial institution examination rating system); and an 8% risk-based capital ratio. In addition, the prompt corrective action standards discussed below also establish, in effect, a minimum 2% tangible capital standard, a 4% leverage ratio (3% for institutions receiving the highest examination rating) and, together with the risk-based capital standard itself, a 4% Tier 1 risk-based capital standard. The regulations also require that, in meeting the tangible, leverage and risk-based capital standards, institutions must generally deduct investments in and loans to subsidiaries engaged in activities as principal that are not permissible for a national bank.

The risk-based capital standard for savings associations requires the maintenance of Tier 1 (core) and total capital (which is defined as core capital and supplementary capital, less certain specified deductions from total capital such as reciprocal holdings of depository institution capital instruments and equity investments) to risk-weighted assets of at least 4% and 8%, respectively. In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet activities, recourse obligations, residual interests and direct credit substitutes, are multiplied by a risk-weight factor, assigned by the capital regulation based on the risks believed inherent in the type of asset. Core (Tier 1) capital is generally defined as common stockholders’ equity (including retained earnings), certain non-cumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries less intangibles other than certain mortgage servicing rights and credit card relationships. The components of supplementary capital (Tier 2 capital) include cumulative preferred stock, long-term perpetual preferred stock, mandatory convertible securities, subordinated debt and intermediate preferred stock, the allowance for loan and lease losses limited to a maximum of 1.25% of risk-weighted assets, and up to 45% of unrealized gains on available-for-sale equity securities with readily determinable fair market values. Overall, the amount of supplementary capital included as part of total capital cannot exceed 100% of core capital.

The Office of the Comptroller of the Currency also has authority to establish individual minimum capital requirements in appropriate cases upon a determination that an institution’s capital level is or may become inadequate in light of the particular circumstances. At December 31, 2013, United Bank’s capital exceeded all applicable requirements.

Savings and loan holding companies are not currently subject to specific regulatory capital requirements. The Dodd-Frank Act, however, required the Federal Reserve Board to promulgate consolidated capital requirements for depository institution holding companies, including savings and loan holding companies, that are no less stringent, both quantitatively and in terms of components of capital, than those applicable to institutions themselves. In early July 2013, the Federal Reserve Board and the Office of the Comptroller of the Currency approved revisions to their capital adequacy guidelines and prompt corrective action rules that implement the revised standards of the Basel Committee on Banking Supervision, commonly called Basel III, and address relevant provisions of the Dodd-Frank Act. “Basel III” refers to two consultative documents released by the Basel Committee on Banking Supervision in December 2009, the rules text released in December 2010, and loss absorbency rules issued in January 2011, which include significant changes to bank capital, leverage and liquidity requirements.

The rules include new risk-based capital and leverage ratios, which are effective January 1, 2015, and revise the definition of what constitutes “capital” for purposes of calculating those ratios. The new minimum capital level requirements applicable to the Company and United Bank will be: (1) a new common equity Tier 1 capital ratio of 4.5%; (2) a Tier 1 capital ratio of 6% (increased from 4%); (3) a total capital ratio of 8% (unchanged from current rules); and (4) a Tier 1 leverage ratio of 4% for all institutions. The rules eliminate the inclusion of certain instruments, such as trust preferred securities, from Tier 1 capital. Instruments issued prior to May 19, 2010 will be grandfathered for companies with consolidated assets of $15 billion or less. The rules also establish a “capital conservation buffer” of 2.5% above the new regulatory minimum capital requirements, which must consist entirely of common equity Tier 1 capital and would result in the following minimum ratios: (1) a common equity Tier 1 capital ratio of 7.0%; (2) a Tier 1 capital ratio of 8.5%; and (3) a total capital ratio of 10.5%. The new capital conservation buffer requirement will be phased in beginning in January 2016 at 0.625% of risk-weighted assets and would increase by that amount each year until fully implemented in January 2019. An institution would be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations would establish a maximum percentage of eligible retained income that could be utilized for such actions.

Loans-to-One Borrower. Federal law provides that savings associations are generally subject to the limits on loans to one borrower applicable to national banks. Generally, a federal savings bank may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of unimpaired capital and surplus. An additional amount may be loaned, equal to 10% of unimpaired capital and surplus, if the loan is secured by readily marketable collateral, which generally does not include real estate. As of December 31, 2013, United Bank was in compliance with the loans-to-one borrower limitations.

Qualified Thrift Lender Test. As a federal savings bank, United Bank must satisfy the qualified thrift lender, or “QTL,” test. Under the QTL test, United Bank must maintain at least 65% of its “portfolio assets” in “qualified thrift investments” in at least nine of the most recent 12 months. “Portfolio assets” generally means total assets of a savings institution, less the sum of specified liquid assets up to 20% of total assets, goodwill and other intangible assets, and the value of property used in the conduct of the savings bank’s business.

A savings bank that fails the qualified thrift lender test must either convert to a bank charter or operate under specified restrictions. The Dodd-Frank Act also makes noncompliance with the QTL test subject to agency enforcement action for a violation of law and subject to dividend limitations. At December 31, 2013, United Bank satisfied this test.

Capital Distributions. Federal regulations govern capital distributions by a federal savings bank, which include cash dividends, payments to repurchase its shares and other transactions charged to the capital account. Savings banks must file an application for approval of a capital distribution if:

•

the total capital distributions for the applicable calendar year exceed net income for that year to date plus retained net income for the preceding two years;

•

the savings bank would not be at least adequately capitalized following the distribution;

•

the distribution would violate any applicable statute, regulation, agreement or Office of the Comptroller of the Currency imposed condition; or

•

the savings bank is not eligible for expedited treatment of its filings (i.e., generally, examination and Community Reinvestment Act ratings in top two categories).

Even if an application is not otherwise required, every savings bank that is a subsidiary of a holding company must still file a notice with the Board of Governors of the Federal Reserve System at least 30 days before the Board of Directors declares a dividend or approves a capital distribution. Notice also must be provided to the Office of the Comptroller of the Currency.

A notice or application may not be approved if:

•

the association would be undercapitalized following the distribution;

•

the proposed capital distribution raises safety and soundness concerns; or

•

the capital distribution would violate a prohibition contained in any statute, regulation or agreement.

In addition, the Federal Deposit Insurance Act provides that an insured depository institution may not make any capital distribution, if after making such distribution the institution would be undercapitalized.

Community Reinvestment Act. All savings banks have a responsibility under the Community Reinvestment Act and related regulations to help meet the credit needs of their communities, including low- and moderate-income neighborhoods. A savings bank’s failure to comply with the provisions of the Community Reinvestment Act could result in denial of certain corporate applications such as branches or mergers, or in restrictions on its activities. Responsibility for administering the Community Reinvestment Act, unlike other fair lending laws, is not being transferred to the Consumer Financial Protection Bureau. United Bank received a “satisfactory” Community Reinvestment Act rating in its most recent examination.

Transactions with Related Parties. Federal law limits a federal savings bank’s authority to engage in transactions with its affiliates (e.g., a company that controls, is controlled by, or is under common control with an insured depository institution such as United Bank, including United Financial Bancorp). In general, loan transactions between an insured depository institution and its affiliate are subject to certain quantitative and collateral requirements. Transactions between an insured depository institution and its affiliate are limited to 10% of the institution’s unimpaired capital and unimpaired surplus for transactions with any one affiliate and 20% of unimpaired capital and unimpaired surplus for transactions in the aggregate with all affiliates. Certain transactions with affiliates are required to be secured by collateral in an amount and of a type specified by federal law. In addition, applicable regulations prohibit a savings bank from lending to any of its affiliates that are engaged in activities that are not permissible for bank holding companies and from purchasing the securities of any affiliate, other than a subsidiary. Transactions with affiliates must be consistent with safe and sound banking practices, not involve low-quality assets and be on terms that are as favorable to the institution as comparable transactions with non-affiliates.

The Sarbanes-Oxley Act of 2002 generally prohibits loans by United Financial Bancorp to its executive officers and directors. However, the law contains a specific exception for loans by a depository institution to its executive officers and directors in compliance with federal banking laws. Under such laws, United Bank’s authority to extend credit to executive officers, directors and 10% shareholders (“insiders”), as well as entities such persons control, is limited. The laws limit both the individual and aggregate amount of loans that United Bank may make to insiders based, in part, on United Bank’s capital level and requires that certain board approval procedures be followed. Such loans are required to be made on terms substantially the same as those offered to unaffiliated individuals and not involve more than the normal risk of repayment. There is an exception for loans made pursuant to a benefit or compensation program that is widely available to all employees of the institution and does not give preference to insiders over other employees. Loans to executive officers are subject to additional limitations based on the type of loan involved.

Enforcement. The Office of the Comptroller of the Currency has primary enforcement responsibility over federal savings banks and has the authority to bring enforcement action against the institution and all “institution-affiliated parties,” including stockholders, and attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on an insured institution. Formal enforcement action may range from the issuance of a capital directive or cease and desist order, to removal of officers and/or directors to the appointment of a receiver or conservator or termination of deposit insurance. Civil penalties cover a wide range of violations, and range up to $25,000 per day, unless a finding of reckless disregard is made, in which case penalties may be as high as $1 million per day. The Federal Deposit Insurance Corporation also has the authority to recommend to the Office of the Comptroller of the Currency that enforcement action be taken with respect to a particular savings institution. If action is not taken by the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation has authority to take action under specified circumstances. Federal law also establishes criminal penalties for certain violations.

Prompt Corrective Action Regulations. Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept broker deposits. The Office of the Comptroller of the Currency is required to take certain supervisory actions against undercapitalized institutions, the severity of which depends upon the institution’s degree of undercapitalization. In addition, numerous mandatory supervisory actions become immediately applicable to an undercapitalized institution, including, but not limited to, increased monitoring by regulators and restrictions on growth, capital distributions and expansion. The Office of the Comptroller of the Currency could also take any one of a number of discretionary supervisory actions, including the issuance of a capital directive and the replacement of senior executive officers and directors. Significantly and critically undercapitalized institutions are subject to additional mandatory and discretionary measures.

At December 31, 2013, United Bank met the criteria for being considered “well-capitalized.”

Insurance of Deposit Accounts. Under the Federal Deposit Insurance Corporation’s risk-based assessment system, insured institutions are assigned a risk category based on supervisory evaluations, regulatory capital levels and certain other factors, with less risky institutions paying lower assessments. An institution’s assessment rate depends upon the category to which it is assigned and certain adjustments specified by the Federal Deposit Insurance Corporation. The Federal Deposit Insurance Corporation may adjust the scale uniformly, except that no adjustment can deviate more than two basis points from the base scale without notice and comment. No institution may pay a dividend if in default of the federal deposit insurance assessment.

The Dodd-Frank Act required the Federal Deposit Insurance Corporation to revise its procedures to base its assessments upon each insured institution’s total assets less tangible equity instead of deposits. The Federal Deposit Insurance Corporation finalized a rule, effective April 1, 2011, that set the assessment range at 2.5 to 45 basis points of total assets less tangible equity.

The Federal Deposit Insurance Corporation has authority to increase insurance assessments. A significant increase in insurance premiums would likely have an adverse effect on the operating expenses and results of operations of United Bank. Management cannot predict what insurance assessment rates will be in the future.

Federal Home Loan Bank System. United Bank is a member of the Federal Home Loan Bank System, which consists of 12 regional Federal Home Loan Banks. The Federal Home Loan Bank provides a central credit facility primarily for member institutions. United Bank, as a member of the Federal Home Loan Bank of Boston, is required to acquire and hold shares of capital stock in that Federal Home Loan Bank. United Bank was in compliance with this requirement with an investment in Federal Home Loan Bank stock at December 31, 2013, of $17.3 million.

Federal Reserve System. Federal Reserve Board regulations require savings banks to maintain noninterest-earning reserves against their transaction accounts, such as negotiable order of withdrawal and regular checking accounts. The regulations generally provide that reserves be maintained against aggregate transaction accounts as follows: a 3% reserve ratio is assessed on net transaction accounts up to and including $79.5 million; a 10% reserve ratio is applied above $79.5 million. The first $12.4 million of otherwise reservable balances (subject to adjustments by the Federal Reserve Board) are exempted from the reserve requirements. At December 31, 2013, United Bank was in compliance with these reserve requirements.

Other Regulations

Interest and other charges collected or contracted for by United Bank are subject to state usury laws and federal laws concerning interest rates. United Bank’s operations are also subject to federal laws applicable to credit transactions, such as the:

•

Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;

•

Home Mortgage Disclosure Act, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves;

•

Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit;

•

Fair Credit Reporting Act, governing the use and provision of information to credit reporting agencies;

•

Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies;

•

Truth in Savings Act; and

•

rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws.

The operations of United Bank also are subject to the:

•

Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records;

•

Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services;

•

Check Clearing for the 21^st Century Act (also known as “Check 21”), which gives “substitute checks,” such as digital check images and copies made from that image, the same legal standing as the original paper check;

•

The USA PATRIOT Act, which requires savings banks to, among other things, establish broadened anti-money laundering compliance programs, due diligence policies and controls to ensure the detection and reporting of money laundering. Such required compliance programs are intended to supplement existing compliance requirements, also applicable to financial institutions, under the Bank Secrecy Act and the Office of Foreign Assets Control regulations; and

•

The Gramm-Leach-Bliley Act, which places limitations on the sharing of consumer financial information by financial institutions with unaffiliated third parties. Specifically, the Gramm-Leach-Bliley Act requires all financial institutions offering financial products or services to retail customers to provide such customers with the financial institution’s privacy policy and provide such customers the opportunity to “opt out” of the sharing of certain personal financial information with unaffiliated third parties.

Holding Company Regulation

The Company is a unitary savings and loan holding company, subject to Federal Reserve Board regulation, examination, supervision, reporting requirements and regulations regarding its officers. The Federal Reserve Board has enforcement authority over the Company and its non-savings institution subsidiaries. Among other things, this authority permits the Federal Reserve Board to restrict or prohibit activities that are determined to be a risk to United Bank. Under federal law and regulations and policy, the business activities of the Company are limited to those activities permissible for financial holding companies under Section 4(k) of the Bank Holding Company Act and certain additional activities that have been authorized for savings and loan holding companies by regulation.

Federal law prohibits a savings and loan holding company from directly or indirectly, or through one or more subsidiaries, acquiring more than 5% of the voting stock of another savings institution or savings and loan holding company, without prior written approval of the Federal Reserve Board or from acquiring or retaining, with certain exceptions, more than 5% of a non-subsidiary holding company or savings association. A savings and loan holding company is also prohibited from acquiring more than 5% of a company engaged in activities other than those authorized by federal law or acquiring or retaining control of an institution that is not federally insured. In evaluating applications by holding companies to acquire savings institutions, the Federal Reserve Board must consider, among other things, the financial and managerial resources and future prospects of the savings institution and company involved, the effect of the acquisition on the risk to the insurance fund, the convenience and needs of the community and competitive factors.

The Federal Reserve Board is prohibited from approving any acquisition that would result in a multiple savings and loan holding company controlling savings institutions in more than one state, subject to two exceptions:

the approval of interstate supervisory acquisitions by savings and loan holding companies; and

the acquisition of a savings institution in another state if the laws of the state of the target savings institution specifically permit such acquisition.

The states vary in the extent to which they permit interstate savings and loan holding company acquisitions.

Capital. Savings and loan holding companies historically have not been subject to consolidated regulatory capital requirements. However, in July 2013, the Federal Reserve Board approved a new rule that implements the “Basel III” regulatory capital reforms and changes required by the Dodd-Frank Act. The final

rule established consolidated capital requirements for many savings and loan holding companies, including the Company. See “Regulation and Supervision-Federal Banking Regulation-Capital Requirements.”

Source of Strength. The Dodd-Frank Act also extends the “source of strength” doctrine to savings and loan holding companies. The regulatory agencies must issue regulations implementing the “source of strength” policy that holding companies act as a source of strength to their subsidiary depository institutions by providing capital and other support to their subsidiary institutions in times of financial distress.

Dividends and Stock Repurchases. The Federal Reserve Board has the power to prohibit dividends by savings and loan holding companies if their actions constitute unsafe or unsound practices. The Federal Reserve Board has issued a policy statement regarding the payment of dividends and the repurchase of shares of common stock by bank holding companies that it has made applicable to savings and loan holding companies as well. In general, the policy provides that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition. Regulatory guidance provides for prior regulatory review of capital distributions in certain circumstances such as where the company’s net income for the past four quarters, net of dividends previously paid over that period, is insufficient to fully fund the dividend or the company’s overall rate of earnings retention is not consistent with the company’s capital needs and overall financial condition. The ability of a holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized. Moreover, a company should inform the Federal Reserve Board reasonably in advance of declaring or paying a dividend that exceeds earnings for the period for which the dividend is being paid. The policy statement also provides for regulatory review prior to a holding company redeeming or repurchasing regulatory capital instruments when the holding company is experiencing financial weaknesses or redeeming or repurchasing common stock or perpetual preferred stock that would result in a net reduction as of the end of a quarter in the amount of such equity instruments outstanding compared with the beginning of the quarter in which the redemption or repurchase occurred. These regulatory policies could affect the ability of the Company to pay dividends, repurchase shares of common stock or otherwise engage in capital distributions.

Acquisition of the Company. Under the Federal Change in Bank Control Act, a notice must be submitted to the Federal Reserve Board if any person (including a company), or group acting in concert, seeks to acquire direct or indirect “control” of a savings and loan holding company or savings association. Under certain circumstances, a change of control may occur, and prior notice is required, upon the acquisition of 10% or more of the outstanding voting stock of the company or institution, unless the Federal Reserve Board has found that the acquisition will not result in a change of control. Under the Change in Control Act, the Federal Reserve Board generally has 60 days from the filing of a complete notice to act, taking into consideration certain factors, including the financial and managerial resources of the acquirer and the anti-trust effects of the acquisition. Any company that acquires control would then be subject to regulation as a savings and loan holding company.

Federal Securities Laws

The Company’s common stock is registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934. As a result, the Company files quarterly and annual reports with the Securities and Exchange Commission and is subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Securities Exchange Act.

Federal Taxation

General. The Company and United Bank are subject to federal income taxation in the same general manner as other corporations, with some exceptions discussed below. The following discussion of federal taxation is intended only to summarize certain pertinent federal income tax matters and is not a comprehensive description of the tax rules applicable to United Financial Bancorp, Inc. or United Bank.

Method of Accounting. For federal income tax purposes, the Company currently reports its income and expenses on the accrual method of accounting and uses a tax year ending December 31 for filing its federal and state income tax returns.

Bad Debt Reserves. Historically, United Bank has been subject to special provisions in the tax law regarding allowable bad debt tax deductions and related reserves. Tax law changes were enacted in 1996, pursuant to the Small Business Protection Act of 1996 (the “1996 Act”), that eliminated the use of the percentage of taxable income method for tax years after 1995 and required recapture into taxable income over a six-year period all bad debt reserves accumulated after 1988. United Bank recaptured its reserves accumulated after 1988 over the six-year period ended December 31, 2001.

Currently, the Company’s consolidated group uses the specific charge off method to account for bad debt deductions for income tax purposes.

Taxable Distributions and Recapture. Prior to the 1996 Act, bad debt reserves created prior to November 1, 1988 were subject to recapture into taxable income if United Bank failed to meet certain thrift asset and definitional tests.

At December 31, 2013, United Bank’s total federal base year reserve was approximately $2.6 million. However, under current law, base-year reserves remain subject to recapture if United Bank makes certain non-dividend distributions, repurchases any of its stock, pays dividends in excess of tax earnings and profits, or ceases to maintain a bank charter.

Alternative Minimum Tax. The IRC imposes an alternative minimum tax (“AMT”) at a rate of 20% on a base of regular taxable income plus certain tax preferences (“alternative minimum taxable income” or “AMTI”). The AMT is payable to the extent such AMTI is in excess of an exemption amount and the AMT exceeds the regular income tax. Net operating losses can offset no more than 90% of AMTI. Certain payments of alternative minimum tax may be used as credits against regular tax liabilities in future years. The Company and United Bank have not been subject to the alternative minimum tax and have no such amounts available as credits for carryover.

Corporate Dividends-Received Deduction. The Company may exclude from its federal taxable income 100% of dividends received from United Bank as a wholly owned subsidiary. The corporate dividends-received deduction is 80% when the dividend is received from a corporation having at least 20% of its stock owned by the recipient corporation. A 70% dividends-received deduction is available for dividends received from corporations owned less than 20% by the recipient corporation.

State Taxation

Beginning in 2009, due to a change in law, the Company and United Bank filed a combined Massachusetts return. The security corporation subsidiaries continue to file separately. The Company’s state tax returns, as well as those of United Bank and its subsidiaries, are not currently under audit. The years after 2009 are open for examination.

United Financial Bancorp and United Bank file combined Massachusetts financial institution income tax returns and are subject to an annual Massachusetts tax at a rate of 9.0% of their net income in 2013. Massachusetts net income is defined as gross income, other than 95% of dividends received in any taxable year beginning on or after January 1, 1999 from or on account of the ownership of any class of stock if the institution owns 15% or more of the voting stock of the institution paying the dividend, less the deductions, but not the credits allowable under the provisions of the Internal Revenue Code, as amended and in effect for the taxable year. The dividends must meet the qualifications under Massachusetts law. Deductions with respect to the following items, however, are not allowed except as otherwise provided: (a) dividends received, except as

otherwise provided; (b) losses sustained in other taxable years; (c) taxes on or measured by income, franchise taxes measured by net income, franchise taxes for the privilege of doing business and capital stock taxes imposed by any state; or (d) the deduction allowed by section 168(k) of the Code.

Due to the legislative change, beginning in 2010, the Massachusetts financial institution tax rate decreased by 0.5% each year for three years until 2012, when it became 9% and will remain at that rate.

As a Maryland business corporation, United Financial Bancorp is required to file annual returns and pay annual fees to the State of Maryland.

United Bank’s subsidiaries, UCB Securities, Inc. and UCB Securities, Inc. II, are taxed as Massachusetts security corporations, and are subject to a state tax rate of 1.32% of their gross income.

Beginning in 2010, United Bank began filing corporation income tax returns in Connecticut due to its lending activity within the state.

Executive Officers of the Registrant

The executive officers of the Company and the Bank are elected annually by the Board of Directors and serve at the Board’s discretion. The executive officers of the Company and the Bank are:


Name		Position
Richard B. Collins		President and Chief Executive Officer of the Company and the Bank
Mark A. Roberts		Executive Vice President and Chief Financial Officer of the Company and the Bank
J. Jeffrey Sullivan		Executive Vice President and Chief Operating Officer of the Bank
Charles R. Valade		Executive Vice President and Chief Lending Officer of the Bank
John J. Patterson		Senior Vice President, Risk Management, of the Bank
Dena M. Hall		Senior Vice President, Marketing and Community Relations, of the Bank

Below is information regarding the executive officers who are not also directors. Unless otherwise stated, each executive officer has held his current position for at least the last five years. Ages presented are as of December 31, 2013.

Mark A. Roberts is the Executive Vice President and Chief Financial Officer of the Company and the Bank. He joined the Company and the Bank in 2006. Before that, he served as the Vice President and Controller for The Connecticut Bank and Trust Company in Hartford, Connecticut and was the Vice President of Finance at Woronoco Savings Bank for six years. Age 50.

J. Jeffrey Sullivan is Executive Vice President and Chief Operating Officer of the Bank. Mr. Sullivan previously served as Executive Vice President and Chief Lending Officer of the Bank from 2003 until he was appointed Executive Vice President and Chief Operating Officer of the Bank effective January 1, 2013. Mr. Sullivan joined the Bank in 2003. Age 49.

Charles R. Valade is Executive Vice President and Chief Lending Officer of the Bank. Mr. Valade previously served as Executive Vice President, Commercial Lending/Worcester Region, of the Bank from 2009 until he was appointed Executive Vice President and Chief Lending Officer of the Bank effective January 1, 2013. Before joining the Bank in connection with the Company’s acquisition of CNB Financial in November 2009, Mr. Valade served as President and Chief Executive Officer of CNB Financial since its formation in 2005. Age 62.

John J. Patterson is Senior Vice President, Risk Management of the Bank. Mr. Patterson joined the Bank in 1993. Age 67.

Dena M. Hall is the Senior Vice President of Marketing and Community Relations of the Bank. She joined the Bank in 2005. Previously, she was the Director of Marketing for Woronoco Savings Bank for seven years. Age 40.

ITEM 1A.

RISK FACTORS

An investment in our common stock involves risk. You should carefully consider the risks described below and all other information contained in this Annual Report on Form 10-K before you decide to buy our common stock. It is possible that risks and uncertainties not listed below may arise or become material in the future and affect our business, results of operations or the price of our common stock.

Negative Developments In The Financial Industry, The Domestic and International Credit Markets, and The Economy In General Pose Significant Challenges For Our Industry and Us and Could Adversely Affect Our Business, Financial Condition And Results Of Operations.

Negative developments that began in the latter half of 2007 and that have continued since then in the global credit and securitization markets have resulted in unprecedented volatility and disruption in the financial markets, a general economic downturn and a tepid economic recovery, both nationally and in our primary markets in Massachusetts and Connecticut. As a result, commercial as well as consumer loan portfolio performances deteriorated at many institutions and have not fully recovered, and the competition for deposits and quality loans has increased significantly. In addition, the values of real estate collateral supporting many commercial loans and home mortgages have declined and may continue to decline. As a result, we may face the following risks:

•

economic conditions that negatively affect housing prices and the job market may cause the credit quality of our loan portfolios to deteriorate;

•

market developments that affect consumer confidence may cause adverse changes in payment patterns by our customers, causing increases in delinquencies and default rates on loans and other credit facilities;

•

the processes that we use to estimate our allowance for loan losses and reserves may no longer be reliable because they rely on judgments, such as forecasts of economic conditions, that may no longer be capable of accurate estimation;

•

the value of our securities portfolio may decline; and

•

we face increased regulation of our industry, and the costs of compliance with such regulation may increase.

These conditions or similar ones may continue to persist or worsen, causing us to experience continuing or increased adverse effects on our business, financial condition, results of operations and the price of our common stock.

Future Changes in Interest Rates Could Reduce Our Profits.

Our ability to make a profit largely depends on our net interest income, which could be negatively affected by changes in interest rates. Net interest income is the difference between the income we earn on our interest-earning assets, such as loans and securities, and the expense we pay on our interest-bearing liabilities, such as deposits and borrowings.

The rates we earn on our assets and the rates we pay on our liabilities are generally fixed for a contractual period of time. Our liabilities generally have shorter contractual maturities than our assets. This imbalance can create significant earnings volatility because market interest rates change over time. In a period of

rising interest rates, the interest income earned on our assets may not increase as rapidly as the interest paid on our liabilities. Additionally, increases in interest rates may decrease loan demand and/or make it more difficult for borrowers to repay adjustable-rate loans. In a period of declining interest rates, the interest income earned on our assets may decrease more rapidly than the interest paid on our liabilities, as borrowers prepay mortgage loans, and mortgage-backed securities and callable investment securities are called or prepaid thereby requiring us to reinvest those cash flows at lower interest rates.

Changes in interest rates also affect the current fair value of our securities portfolio. Generally, the value of securities moves inversely with changes in interest rates. At December 31, 2013, the fair value of our available-for-sale securities portfolio, consisting of agency securities, mortgage-backed securities, corporate debt obligations, municipal obligations and preferred stock, totaled $264.6 million. Unrealized net losses on these available-for-sale securities totaled $501,000 at December 31, 2013 and are reported as a separate component of stockholders’ equity. Decreases in the fair value of securities available for sale in future periods would have an adverse effect on stockholders’ equity.

We evaluate interest rate sensitivity using income simulation models that estimate the change in our net interest income over a range of interest rate scenarios. Net income at risk measures the risk of a decline in earnings due to potential short-term and long term changes in interest rates. At December 31, 2013, in the event of an immediate 200 basis point increase in interest rates, the model projects that we would experience a 1.29% decrease in net interest income over the following 12 months. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Management of Market Risk.”

Our Increased Emphasis on Commercial Real Estate and Commercial and Industrial Lending May Expose Us to Increased Lending Risks.

At December 31, 2013, our portfolio of commercial real estate loans totaled $862.6 million, or 45.8% of our total loans, and our portfolio of commercial and industrial loans totaled $293.1 million, or 15.6% of our total loans. These loans have increased as a percentage of our total loan portfolio in recent years and generally have more risk and require a commensurately higher loan loss allowance than one- to four-family residential mortgage loans. Because the repayment of commercial real estate and commercial and industrial loans depends on the successful management and operation of the borrower’s properties or related businesses, repayment of such loans can be affected by adverse conditions in the real estate market or the local economy. Many of our borrowers also have more than one commercial real estate or commercial and industrial loan outstanding with us. Consequently, an adverse development with respect to one loan or one credit relationship can expose us to significantly greater risk of loss compared to an adverse development with respect to a one- to four-family residential mortgage loan. Finally, if we foreclose on a commercial real estate or commercial and industrial loan, our holding period for the collateral, if any, typically is longer than for one- to four-family residential mortgage loans because there are fewer potential purchasers of the collateral. Because we plan to continue to increase our originations of these loans, it may be necessary to increase the level of our allowance for loan losses because of the increased risk characteristics associated with these types of loans. Any such increase to our allowance for loan losses would adversely affect our earnings.

Our Emphasis On Residential Mortgage Loans and Home Equity Loans And Lines Of Credit Exposes Us To Lending Risks.

At December 31, 2013, $466.6 million, or 24.8%, of our loan portfolio consisted of one- to four-family residential mortgage loans and $179.5 million, or 9.5%, of our loan portfolio consisted of home equity loans and lines of credit. Recent declines in the housing market have resulted in declines in real estate values in our market areas. These declines in real estate values could cause some of our mortgage and home equity loans and lines of credit to be inadequately collateralized, which would expose us to a greater risk of loss if we seek to recover on defaulted loans by selling the real estate collateral.

The Merger Agreement May Be Terminated In Accordance With Its Terms and the Merger May Not Be Completed.

The Merger Agreement is subject to a number of conditions that must be fulfilled to complete the merger. Those conditions include: approval of the merger agreement by our and Rockville Financial’s stockholders, receipt of requisite regulatory approvals, absence of orders prohibiting completion of the merger, the continued accuracy of the representations and warranties by both parties and the performance by both parties of their covenants and agreements, and the receipt by both parties of legal opinions from their respective tax counsels. If these conditions to the closing of the Merger are not fulfilled, then the Merger may not be completed. In addition, if the Merger is not completed by September 14, 2014, either Rockville Financial or we may choose not to proceed with the Merger, and the parties can mutually decide to terminate the merger agreement at any time, before or after stockholder approval. In addition, Rockville Financial may elect to terminate the merger agreement in certain other circumstances.

Termination of the Merger Agreement Could Negatively Impact Us.

If the Merger Agreement is terminated, our business may be adversely impacted by the failure to pursue other beneficial opportunities due to the focus of management on the merger. In addition, if the Merger Agreement is terminated, the market price of our common stock might decline to the extent that the current market price reflects a market assumption that the merger will be completed. If the Merger Agreement is terminated and our board of directors seeks another merger or business combination, our stockholders cannot be certain that we will be able to find a party willing to offer equivalent or more attractive consideration than the consideration we are receiving in this merger. If the Merger Agreement is terminated under certain circumstances, we may be required to pay a termination fee of $15 million to Rockville Financial.

We Will Be Subject to Business Uncertainties and Contractual Restrictions While the Merger is Pending.

Uncertainty about the effect of the merger on employees and customers may have an adverse effect on us and consequently on Rockville Financial. These uncertainties may impair our ability to attract, retain and motivate key personnel until the merger is completed and could cause customers and others that deal with us to seek to change existing business relationships with us. Retention of certain employees may be challenging during the pendency of the merger, as certain employees may experience uncertainty about their future roles. If key employees depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with the business, our business could be negatively impacted. In addition, the Merger Agreement restricts us from making certain acquisitions and taking other specified actions until the merger occurs without the consent of Rockville Financial. These restrictions may prevent us from pursuing attractive business opportunities that may arise before the completion of the merger.

Income From Secondary Mortgage Market Operations is Volatile, and We May Incur Losses or Charges With Respect to Our Secondary Mortgage Market Operations Which Would Negatively Affect Our Earnings.

We generally sell in the secondary market the fixed-rate residential mortgage loans that we originate, earning non-interest income. When interest rates rise, the demand for mortgage loans tends to fall and may reduce the number of loans available for sale. When interest rates fall, the demand for fixed-rate mortgage loans also tends to fall and may reduce the number of loans available for sale. In addition to interest rate levels, weak or deteriorating economic conditions also tend to reduce loan demand. Although we sell loans in the secondary market without recourse, we are required to give customary representations and warranties to the buyers. If we breach those representations and warranties, the buyers can require us to repurchase the loans and we may incur a loss on the repurchase. Because we generally retain the servicing rights on the loans we sell in the secondary market, we are required to record a mortgage servicing right asset, which we test quarterly for impairment. The value of mortgage servicing rights tend to increase with rising interest rates and to decrease with falling interest rates. If we are required to take an impairment charge, that would hurt our earnings.

If Our Allowance for Loan Losses is Not Sufficient to Cover Actual Loan Losses, Our Earnings Could Decrease.

We make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans. In determining the amount of the allowance for loan losses, we review our loans and our loss and delinquency experience, growth of our loan portfolio, changes in the composition of our loan portfolio and the volume and trends in our non-performing and classified loans and charge-offs. We also evaluate economic conditions and general market collateral valuations. Because of the degree of uncertainty and susceptibility of these factors to change, our actual losses may vary from our current estimates. If our assumptions are incorrect, our allowance for loan losses may not be sufficient to cover losses inherent in our loan portfolio, resulting in additions to our allowance. Our allowance for loan losses was 0.71% of total loans and 83.8% of non-performing loans at December 31, 2013, compared to 0.67% of total loans and 82.2% of non-performing loans at December 31, 2012. Material additions to our allowance could materially decrease our net income.

In addition, bank regulators periodically review our allowance for loan losses and may require us to increase our provision for loan losses or recognize further loan charge-offs. Any increase in our allowance for loan losses or loan charge-offs as required by these regulatory authorities may have a material adverse effect on our financial condition and results of operations.

Further Declines in the Value of Certain Investment Securities Could Require Write-Downs, Which Would Reduce Our Earnings.

At December 31, 2013, our investment portfolio included $1.6 million in trust preferred securities and $30.6 million in municipal bonds. In addition, we have two cost basis investments totaling $1.4 million. We review our investment securities portfolio at each quarter and reporting period to determine whether the fair value is below the current carrying value. When the fair value of any of our investment securities has declined below its current carrying value, we are required to assess whether the decline is other-than-temporary. Management evaluated the investment portfolio and has determined that no declines in the fair value of the Company’s security portfolio are deemed to represent other-than-temporary impairment (“OTTI”) as of December 31, 2013. In 2012, management recognized a pre-tax, non-cash OTTI charge of $165,000 on a corporate bond. Management based its assessment on the issuer’s credit ratings, credit outlook, payment status and financial condition, the length of time the bond has been in a loss position, the size of the loss position and other meaningful information. Management has concluded that no other securities have experienced impairments that are other-than-temporary. During 2012 and 2011, management determined that a venture capital investment carried at cost had suffered impairment that was considered other-than-temporary. The cost basis of the investment was written down by $37,000 and $99,000 in 2012 and 2011, respectively, to fair value as a new cost basis and the write down was accounted for as a realized loss and was included in earnings. A number of factors or combinations of factors could cause us to conclude in one or more future reporting periods that an unrealized loss that exists with respect to these securities constitutes an impairment that is other-than-temporary. These factors include, but are not limited to, changes in the expected cash flows, failure to make scheduled interest payments, an increase in the severity of the unrealized loss on a particular security, an increase in the continuous duration of the unrealized loss without an improvement in value or changes in market conditions and/or industry or issuer specific factors that would render us unable to forecast a full recovery in value. An other-than-temporary impairment write-down would reduce our earnings.

Regulatory Reform May Have a Material Impact on Our Operations.

In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”) was passed, which imposes significant regulatory and compliance changes. The key effects of the Dodd-Frank Act on our business are:

•

changes to regulatory capital requirements;

•

creation of new government regulatory agencies (such as the Financial Stability Oversight Council, which oversees systemic risk, and the Consumer Financial Protection Bureau, which develops and enforces rules for bank and non-bank providers of consumer financial products);

•

potential limitations on federal preemption;

•

changes to deposit insurance assessments;

•

regulation of debit interchange fees we earn;

•

changes in retail banking regulations, including potential limitations on certain fees we may charge; and

•

changes in regulation of consumer mortgage loan origination and risk retention.

In addition, the Dodd-Frank Act restricts the ability of banks to engage in certain proprietary trading or to sponsor or invest in private equity or hedge funds. The Dodd-Frank Act also contains provisions designed to limit the ability of insured depository institutions, their holding companies and their affiliates to conduct certain swaps and derivatives activities and to take certain principal positions in financial instruments.

Some provisions of the Dodd-Frank Act became effective immediately upon its enactment. Many provisions, however, will require regulations to be promulgated by various federal agencies to be implemented, some but not all of which have been proposed or finalized by the applicable federal agencies. The provisions of the Dodd-Frank Act may have unintended effects, which will not be clear until after implementation. Certain changes resulting from the Dodd-Frank Act may impact the profitability of our business activities, require changes to certain of our business practices, impose upon us more stringent capital, liquidity and leverage requirements or otherwise adversely affect our business. These changes may also require us to invest significant management attention and resources to evaluate and make any changes necessary to comply with new statutory and regulatory requirements. Failure to comply with the new requirements may negatively impact our results of operations and financial condition. While we cannot predict what effect any presently contemplated or future changes in the laws or regulations or their interpretations would have on us, these changes could be materially adverse to investors in our common stock.

We Operate in a Highly Regulated Environment and We May be Adversely Affected by Changes in Laws and Regulations.

We are subject to extensive regulation, supervision and examination by the Federal Reserve Board and the Office of the Comptroller of the Currency, our primary federal regulators, and the Federal Deposit Insurance Corporation, as insurer of its deposits. Such regulation and supervision governs the activities in which an institution and its holding company may engage, and are intended primarily for the protection of the insurance fund and the depositors and borrowers of the Bank rather than for holders of our common stock. Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on our operations, the classification of our assets and determination of the level of our allowance for loan losses. Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, legislation or supervisory action, may have a material impact on our operations.

Strong Competition Within Our Market Area May Limit Our Growth and Profitability.

We face intense competition in making loans and attracting deposits. In our market area, we compete with commercial banks, savings and cooperative institutions, mortgage brokerage firms, credit unions, finance companies, mutual funds, insurance companies, and brokerage and investment banking firms operating locally and elsewhere. The competition has made it more difficult for us to make new loans and at times has forced us to offer higher deposit rates. Price competition for loan and deposits might result in us earning less on our loans and paying more on our deposits, which could reduce net interest income. Some of our competitors have substantially greater resources and lending limits than we have, have greater name recognition and market presence that benefit them in attracting business, and offer certain services that we do not or cannot provide. In addition, larger competitors may be able to price loans and deposits more aggressively than we do. Our profitability depends upon our continued ability to successfully compete in our market area. The greater resources and deposit and loan products offered by some of our competitors may limit our ability to increase our interest-earning assets.

Our Wholesale Funding Sources May Prove Insufficient to Replace Deposits at Maturity and Support Our Future Growth.

We must maintain sufficient funds to respond to the needs of depositors and borrowers. As a part of our liquidity management, we use a number of funding sources in addition to core deposit growth and repayments and maturities of loans and investments. As we continue to grow, we are likely to become more dependent on these sources, which include Federal Home Loan Bank advances, borrowings from the Federal Reserve Bank, reverse repurchase agreements, brokered CDs and proceeds from the sale of loans and securities and liquidity resources of the holding company. Our financial flexibility will be severely constrained if we are unable to maintain our access to funding or if adequate financing is not available to accommodate future growth at acceptable interest rates. Finally, if we are required to rely more heavily on more expensive funding sources to support future growth, our revenues may not increase proportionately to cover our costs. In this case, our operating margins and profitability would be adversely affected.

If The Goodwill That We Recorded In Connection With A Business Acquisition Becomes Impaired, It Could Have A Negative Impact On Our Profitability.

Goodwill represents the amount of acquisition cost over the fair value of net assets we acquired in the purchase of another financial institution. We review goodwill for impairment at least annually, or more frequently if events or changes in circumstances indicate the carrying value of the asset might be impaired. We determine impairment by comparing the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. Any such adjustments are reflected in our results of operations in the periods in which they become known. At December 31, 2013, our goodwill totaled $41.0 million. While we have recorded no such impairment charges since we initially recorded the goodwill, our future evaluations of goodwill may result in findings of impairment and related write-downs, which may have a material adverse effect on our financial condition and results of operations.

The Building Of Market Share Through The Creation Of New Branches Or Loan Production Offices Could Cause Our Expenses To Increase Faster Than Revenues.

We have opened two loan production offices and a new branch office in the past two years. We may continue to build market share in our primary market areas by opening new branches or loan production offices. There are considerable costs involved in opening branches and new branches generally require a period of time to generate sufficient revenues to offset their costs, especially in areas in which we do not have an established presence. Accordingly, any new branch or loan production office can be expected to negatively impact our earnings for some period of time until the branch or loan production office reaches certain economies of scale. We have no assurance any new branches or loan production offices will be successful even after they have been established.

Our Estimates Of Discounts On Acquired Loans With Deteriorated Credit Quality May Be Insufficient.

Under generally accepted principles for business combinations, there is no loan loss allowance recorded for acquired loans, which are recorded at net fair value on the acquisition date. This net fair value generally includes embedded loss estimates for acquired loans with deteriorated credit quality. These estimates are based on projections of expected cash flows for these problem loans. If the projections are incorrect, the fair value estimates may exceed the actual collectability of the balances, and this may result in the related loans being considered impaired.

The Geographic Concentration of Our Markets In Massachusetts and Connecticut Makes Our Business Highly Susceptible To Downturns In These Local Economies and Depressed Banking Markets, Which Could Materially and Adversely Affect Us.

Unlike larger financial institutions that are more geographically diversified, we are a regional banking franchise concentrated in certain markets in Massachusetts and Connecticut. Our success depends significantly on growth in population, income levels, deposits and housing starts in the geographic markets in which we operate. The local economic conditions in these areas have a significant impact on our commercial, real estate and construction loans, the ability of borrowers to repay these loans, and the value of the collateral securing these loans. Adverse changes in, and further deterioration of, the economic conditions in the markets in which we operate in Massachusetts and Connecticut could negatively affect our financial condition, results of operations and profitability. A continuing deterioration in economic conditions could result in the following consequences, any of which could have a material adverse effect on our business:

•

loan delinquencies may increase;

•

problem assets and foreclosures may increase;

•

demand for our products and services may decline; and

•

collateral for loans that we make may decline in value, in turn reducing a customer’s borrowing power, and reducing the value of assets and collateral associated with the our loans.

We Are Dependent On Our Information Technology and Telecommunications Systems and Third-Party Servicers, and Systems Failures, Interruptions or Breaches of Security Could Have An Adverse Effect on Our Financial Condition and Results of Operations.

Our business is highly dependent on the successful and uninterrupted functioning of our information technology and telecommunications systems and third-party servicers. We outsource many of our major systems, such as data processing, loan servicing and deposit processing. The failure of these systems, or the termination of a third-party software license or service agreement on which any of these systems is based, could interrupt our operations. Because our information technology and telecommunications systems interface with and depend on third-party systems, we could experience service denials if demand for such services exceeds capacity or such third-party systems fail or experience interruptions. If sustained or repeated, a system failure or service denial could result in a deterioration of our ability to process new and renewal loans, gather deposits and provide customer service, compromise our ability to operate effectively, damage our reputation, result in a loss of customer business and/or subject us to additional regulatory scrutiny and possible financial liability, any of which could have a material adverse effect on our financial condition and results of operations.

In addition, we provide our customers the ability to bank remotely, including online over the Internet. The secure transmission of confidential information is a critical element of remote banking. Our network could be vulnerable to unauthorized access, computer viruses, phishing schemes, spam attacks, human error, natural disasters, power loss and other security breaches. We may be required to spend significant resources to protect

against the threat of security breaches and computer viruses, or to alleviate problems caused by security breaches or viruses. Further, we outsource some of the data processing functions used for remote banking, and accordingly we are dependent on the expertise and performance of our third-party providers. To the extent that our activities, the activities of our customers, or the activities of our third-party service providers involve the storage and transmission of confidential information, security breaches and viruses could expose us to claims, litigation and other possible liabilities. Any inability to prevent security breaches or computer viruses could also cause existing customers to lose confidence in our systems and could adversely affect our reputation, results of operations and ability to attract and maintain customers and businesses. In addition, a security breach could also subject us to additional regulatory scrutiny, expose us to civil litigation and possible financial liability and cause reputational damage.

ITEM 1B.

UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2.

PROPERTIES

The Company conducts its business through its executive office at 95 Elm Street, West Springfield, Massachusetts, its 35 full-service branch offices, two loan production offices, two financial services facilities, and two drive-up express branches. Of the 35 full-service branch offices, 14 are owned and 21 are leased, both of the loan production offices are leased, one of the financial services facilities is owned and one is leased, and one of the drive-up branches is owned and one is leased. The Company also has three remote ATM locations, two of which are leased. Lease expiration dates range from 2014 to 2034 with renewal options ranging from five to ten years. See Note F in the Company’s Consolidated Financial Statements for more information.

ITEM 3.

LEGAL PROCEEDINGS

United Bank, as successor in interest to Commonwealth National Bank, is involved in litigation relating to its foreclosure on a certain loan property. The litigants claim that Commonwealth National Bank acted in bad faith and in violation of applicable law and that its actions resulted in a sale of the underlying property for less than its market value, thereby causing damage to the parties. A trial was held in the third quarter of 2011 and the judge ruled in United Bank’s favor. The litigants have appealed the decision. United Bank believes these claims and the appeal are without merit and is vigorously defending the litigation. No estimate of any reasonably possible loss or range of loss to United Bank can be made at this time.

In addition, the Company and its subsidiary are subject to various legal actions arising in the normal course of business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

ITEM 4.

MINE SAFETY DISCLOSURES.

Not applicable.

PART II

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

(a) Our shares of common stock are traded on the Nasdaq Global Select Market under the symbol “UBNK”. The approximate number of holders of record of United Financial Bancorp, Inc.’s common stock as of March 5, 2014 was 3,698. Certain shares of the Company are held in “nominee” or “street” name; accordingly, the number of beneficial owners of such shares is not known or included in the foregoing number.

The following table presents quarterly market information and dividends declared for the common stock of the Company for the years ended December 31, 2013 and 2012. The high and low sales prices for the quarterly periods noted below were obtained from the NASDAQ Global Select Market.


	Price Per Share				Cash Dividend Declared
	High		Low		Cash Dividend Declared
2013
Fourth quarter	$	20.47	$	15.60	$	0.11
Third quarter		17.00		15.24		0.11
Second quarter		16.47		14.25		0.11
First quarter		16.32		14.44		0.10

2012
Fourth quarter	$	15.75	$	14.13	$	0.10
Third quarter		14.93		13.73		0.10
Second quarter		16.88		13.36		0.09
First quarter		16.93		15.10		0.09

Set forth hereunder is a stock performance graph comparing (a) the cumulative total return on the common stock for the period beginning on December 31, 2008 through December 31, 2013, (b) the cumulative total return on stocks included in the SNL Thrift Index over such period and (c) the cumulative total return on stocks included in the Russell 2000 Index over such period. The stock performance graph is being furnished solely to accompany this report pursuant to Item 201(e) of Regulation S-K, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into

any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

The cumulative total return on the common stock was computed assuming the reinvestment of cash dividends during the period and is expressed in dollars based on an assumed initial investment of $100.

LOGO

Under the agreement and plan of merger between the Company and Rockville Financial, Inc., the Company is prohibited from paying any dividends on its capital stock, except for regular quarterly cash dividends at a rate of no more than $0.11 per share. Future dividends depend upon earnings, financial condition, appropriate legal restrictions and other factors in existence at the time the Board of Directors considers a dividend declaration. In addition, future dividends are dependent primarily on cash flows from the investment portfolio, and dividends or capital distributions from United Bank.

For a discussion of United Bank’s ability to pay dividends, see Part I—Item 1. Business—“Supervision and Regulation—Federal Banking Regulation” and “—Holding Company Regulation.”

(b) Not Applicable.

(c) The following table provides certain information with regard to shares repurchased by the Company in the fourth quarter of 2013.


Period	(a) Total Number of Shares (or Units) Purchased			(b) Average Price Paid Per Share (or Unit)		(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs		(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs ^(1, 2)
October 1 - 31, 2013		-		$	-		-		1,222,337
November 1 - 30, 2013		639	⁽³⁾		17.04		-		1,222,337
December 1 - 31, 2013		3,428	⁽³⁾		19.73		-		1,222,337

Total		4,067		$	19.31		-

(1)

On October 18, 2012, the Board of Directors approved a plan to repurchase up to 5%, or approximately 769,000 shares, of the Company’s common stock. Under the plan, the Company intends to repurchase shares from time to time, depending on market conditions until it is completed. As of September 30, 2013, the Company has repurchased 516,663 shares at a cost of approximately $7.7 million and an average price of $14.88 per share, under this plan.

(2)

On August 15, 2013, the Board of Directors approved a plan to repurchase up to 5%, or approximately 970,000 shares, of the Company’s common stock. This repurchase program will commence immediately upon completion of the previous plan approved on October 18, 2012, under which the Company intends to repurchase shares from time to time, depending on market conditions until it is completed.

(3)	Represents withholdings subject to restricted stock awards under the United Financial Bancorp, Inc. 2008 Equity Incentive Plan as payment of taxes due upon the vesting of the restricted stock awards.

ITEM 6.

SELECTED FINANCIAL DATA

The summary financial information presented below is derived in part from the consolidated financial statements of the Company. The following is only a summary and you should read it in conjunction with the consolidated financial statements and notes beginning on page F-1. The information at December 31, 2013 and 2012 and for the years ended December 31, 2013, 2012 and 2011 is derived in part from the audited consolidated financial statements of the Company that appear in this Annual Report on Form 10-K. The information for the years ended December 31, 2010 and 2009 is derived in part from audited consolidated financial statements that do not appear in this Annual Report on Form 10-K.


	At December 31,
	2013			2012			2011		2010			2009
	(In thousands)
Selected Financial Condition Data:
Total assets	$	2,481,843		$	2,402,303		$	1,623,752	$	1,584,877		$	1,541,040
Cash and cash equivalents		47,241			30,679			61,518		83,069			21,877
Short-term investments		-			-			-		-			1,096
Investment securities available-for-sale		264,629			294,322			221,813		205,852			243,304
Investment securities held-to-maturity		111,185			82,986			115,897		132,475			63,174
Loans, net (1)		1,871,066			1,807,401			1,112,941		1,066,197			1,115,416
Deposits		1,946,484			1,848,175			1,229,975		1,143,301			1,038,927
FHLB advances		139,663			141,525			106,417		153,307			208,173
Repurchase agreements		61,555			69,229			37,260		41,029			47,303
Subordinated debentures		5,959			9,630			5,539		5,448			5,357
Stockholders’ equity		302,779			307,189			227,361		222,576			225,246
Non-performing assets (2)		18,535			17,340			10,577		10,970			17,832

	Years Ended December 31,
	2013			2012			2011		2010			2009
	(Dollars in thousands, except per share amounts)
Selected Operating Data:
Interest and dividend income	$	94,293		$	71,171		$	71,074	$	73,858		$	62,986
Interest expense		15,403			14,992			18,261		20,947			21,986

Net interest income before provision for loan losses		78,890			56,179			52,813		52,911			41,000
Provision for loan losses		4,092			3,139			3,242		2,285			2,998

Net interest income after provision for loan losses		74,798			53,040			49,571		50,626			38,002
Non-interest income		12,028			10,623			9,353		8,716			8,676
Non-interest expense		62,962			56,240			44,062		43,841			36,858

Income before taxes		23,864			7,423			14,862		15,501			9,820
Income tax expense		6,462			3,795			3,678		5,469			4,014

Net income	$	17,402	⁽³⁾	$	3,628	⁽⁴⁾	$	11,184	$	10,032	⁽⁵⁾	$	5,806	⁽⁵⁾

Basic earnings per share	$	0.88		$	0.24		$	0.75	$	0.66		$	0.38
Diluted earnings per share	$	0.87		$	0.24		$	0.74	$	0.65		$	0.38
Dividends per share	$	0.43		$	0.38		$	0.34	$	0.30		$	0.28
Number of shares outstanding
Basic		19,779,667			15,234,896			14,929,714		15,302,505			15,265,192
Diluted		20,073,219			15,421,777			15,198,702		15,394,761			15,273,375


	At or For the Years Ended December 31,
	2013			2012			2011			2010			2009
Selected Financial Ratios and Other Data:

Performance Ratios (6):
Return on average assets		0.71	%⁽⁷⁾		0.21	%⁽⁸⁾		0.70	%		0.65	%⁽⁹⁾		0.46	%⁽⁹⁾
Return on average equity		5.72	%⁽⁷⁾		1.52	%⁽⁸⁾		4.94	%		4.49	%⁽⁹⁾		2.67	%⁽⁹⁾
Average equity to average assets		12.49	%		13.70	%		14.15	%		14.56	%		17.17	%
Tangible equity to tangible assets at end of period (6)		10.58	%⁽¹⁰⁾		11.12	%⁽¹⁰⁾		13.53	%⁽¹⁰⁾		13.54	%⁽¹⁰⁾		14.13	%⁽¹⁰⁾
Interest rate spread (11)		3.32	%		3.18	%		3.17	%		3.25	%		2.83	%
Net interest margin (12)		3.50	%		3.45	%		3.51	%		3.65	%		3.39	%
Average interest-earning assets to average interest-bearing liabilities		125.86	%		129.12	%		128.20	%		127.83	%		130.87	%
Total non-interest expense to average total assets		2.59	%⁽¹³⁾		3.22	%⁽¹⁴⁾		2.75	%		2.85	%⁽¹⁵⁾		2.91	%⁽¹⁵⁾
Efficiency ratio (16)		69.59	%⁽¹³⁾		85.08	%⁽¹⁴⁾		71.08	%		71.42	%⁽¹⁵⁾		75.45	%⁽¹⁵⁾
Dividend payout ratio		48.82	%		152.18	%		45.31	%		45.74	%		72.99	%

Regulatory Capital Ratios (6, 17):
Tier I risk-based capital		12.43	%		12.98	%		16.17	%		15.49	%		15.73	%
Tier I (core) capital		10.27	%		10.69	%		12.23	%		11.53	%		12.14	%
Tangible Equity Ratio		10.27	%		10.69	%		12.23	%		11.53	%		12.14	%
Total risk-based capital		13.09	%		13.61	%		17.09	%		16.34	%		16.53	%

Asset Quality Ratios (6):
Non-performing assets as a percent of total assets (2)		0.75	%		0.72	%		0.65	%		0.69	%		1.16	%
Non-performing loans as a percent of total loans (2)		0.85	%		0.81	%		0.75	%		0.88	%		1.45	%
Allowance for loan losses as a percent of total loans		0.71	%⁽¹⁸⁾		0.67	%⁽¹⁸⁾		0.99	%⁽¹⁸⁾		0.93	%⁽¹⁸⁾		0.82	%⁽¹⁸⁾
Allowance for loan losses as a percent of non- performing loans (2)		83.75	%⁽¹⁹⁾		82.18	%⁽¹⁹⁾		131.68	%		105.86	%⁽¹⁹⁾		56.36	%⁽¹⁹⁾

Number of full service customer facilities		35			38			22			22			22

(1)	The allowance for loan losses at December 31, 2013, 2012, 2011, 2010 and 2009 was $13.4 million, $12.1 million, $11.1 million, $10.0 million and $9.2 million, respectively.

(2)

Non-performing assets consist of non-performing loans, foreclosed other real estate owned (“OREO”) and other non-performing assets. Non-performing loans consist of non-accrual and accruing loans 90 days or more overdue, while OREO consists of real estate acquired through foreclosure and real estate acquired by acceptance of a deed-in-lieu of foreclosure.

(3)

Exclusive of the $987,000 branch closing costs, $879,000 merger-related expenses, $227,000 net gains on sale of securities, a $206,000 gain related to an investment in a venture capital fund accounted for on a cash basis and the related $386,000 net tax benefit of these items for the year ended December 31, 2013, net income would have been $18.4 million. *

(4)

Exclusive of the $5.0 million merger-related expenses, $4.5 million ESOP plan termination expense, $207,000 in FHLBB prepayment penalties, the $202,000 other-than-temporary impairment charge and the $660,000 income tax effect of these expense items for the year ended December 31, 2012, net income would have been $12.8 million. *

(5)

Exclusive of the $819,000 and $2.5 million (after tax) in merger-related expenses for the years ended December 31, 2010 and 2009, respectively, and a $318,000 (after tax) special FDIC insurance assessment for the year ended December 31, 2009, net income would have been $10.9 million and $8.7 million, respectively. *

(6)

Asset Quality Ratios and Regulatory Capital Ratios and the “tangible equity to tangible assets” ratio are end-of-period ratios. With the exception of end-of-period ratios, all ratios are based on average monthly balances during the indicated periods and are annualized where appropriate. Tangible equity, and measures that refer to tangible equity, are non-GAAP financial measures. They are used by investors as an alternate measure of capital strength. Many regulatory capital measures also adjust equity to exclude goodwill and most intangible assets.

(7)

(8)

(9)

Exclusive of the $819,000 and $2.5 million (after tax) in acquisition related expenses for the years ended December 31, 2010 and 2009, respectively, and a $318,000 (after tax) special FDIC insurance assessment for the year ended December 31, 2009, the return on average assets would have been 0.71% and 0.68% and average equity would have been 4.85% and 3.97%, respectively. *

(10)	Excludes the impact of goodwill and other intangible assets of $45.0 million at December 31, 2013, $44.4 million at December 31, 2012, $8.9 million at December 31, 2011, $9.2 million at December 31, 2010 and $8.8 million at December 31, 2009.

(11)	The interest rate spread represents the difference between weighted-average yield on interest-earning assets and the weighted-average cost of interest-bearing liabilities.

(12)	The net interest margin represents net interest income as a percent of average interest-earning assets.

(13)	Exclusive of the $987,000 branch closing costs and $879,000 merger-related expenses for the year ended December 31, 2013, non-interest expense to average total assets would have been 2.51% and the efficiency ratio would have been 67.68%. *

(14)	Exclusive of the $5.0 million merger-related expenses, $4.5 million ESOP plan termination expense, $207,000 in FHLBB prepayment penalties for the year ended December 31, 2012, non-interest expense to average total assets would have been 2.67% and the efficiency ratio would have been 70.49%. *

(15)

Exclusive of the $1.1 million and $2.9 million in acquisition-related expenses for the years ended December 31, 2010 and 2009, respectively, and a $538,000 special FDIC insurance assessment for the year ended December 31, 2009, non-interest expense to average total assets would have been 2.78% and 2.64% and the efficiency ratio would have been 69.55% and 68.49%, respectively. *

(16)	The efficiency ratio represents non-interest expense divided by the sum of net interest income and non-interest income and excludes gains/losses on sales of securities and loans and impairment charges on securities.

(17)	Regulatory Capital Ratios are reported for United Bank only.

(18)

Exclusive of the $523.9 million, $659.6 million, $148.9 million, $209.8 million and $242.9 million in loans acquired and $4.6 million, $5.0 million, $19.1 million, $21.4 million and $22.7 million in loans purchased from other financial institutions, allowance for loan losses as a percent of total loans would have been 0.99%, 1.05%, 1.17%, 1.18% and 1.07% at December 31, 2013, 2012, 2011, 2010 and 2009, respectively. *

(19)	Excluding the $7.4 million, $7.0 million, $163,000 and $3.3 million in non-performing loans acquired, allowance for loan losses as a percent of non-performing loans would have been 155.33%, 157.72%, 107.72% and 70.44% at December 31, 2013, 2012, 2010 and 2009, respectively. *

These are non-GAAP financial measures presented for comparative purposes only. They are not a substitute for GAAP measures and should only be considered in conjunction with the Company’s GAAP financial information. These non-GAAP financial measures provide investors with more detailed information that is useful in understanding our financial performance and condition.

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion and analysis reflects our consolidated financial statements and other relevant statistical data, and is intended to enhance your understanding of our financial condition and results of operations. The information in this section has been derived from the audited consolidated financial statements, which appear beginning on page F-1 of this Annual Report. You should read the information in this section in conjunction with the business and financial information regarding the Company provided in this Annual Report on Form 10-K.

Overview

Our results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets, consisting primarily of loans, investment securities (including mortgage-backed securities, other securities and corporate and municipal bonds) and other interest-earning assets (primarily Federal Home Loan Bank stock and cash and cash equivalents), and the interest paid on our interest-bearing liabilities, consisting primarily of savings accounts, money market accounts, transaction accounts, certificates of deposit and Federal Home Loan Bank advances.

Our results of operations are also affected by our provision for loan losses, non-interest income and non-interest expense. Non-interest income consists primarily of deposit account fees, wealth management income, increases in cash value of bank-owned life insurance, gains and losses on the sales of loans and of securities, impairment charges for securities and miscellaneous other income. Non-interest expense consists primarily of compensation and employee benefits, data processing, occupancy, marketing and public relations, professional services, printing and office supplies, acquisition related costs and other operating expenses. Our results of operations also may be affected significantly by general and local economic and competitive conditions, changes in market interest rates, governmental policies and actions of regulatory authorities.

Critical Accounting Policies

The SEC defines “critical accounting policies” as those that require application of management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in future periods. The Company’s significant accounting policies are described in Note 1 to the consolidated financial statements. Please see those policies in conjunction with this discussion. Management believes that the following policies would be considered critical under the SEC’s definition:

Allowance for Loan Losses. The allowance for loan losses is the amount estimated by management as necessary to cover credit losses inherent in the loan portfolio at the balance sheet date. The allowance is established through the provision for loan losses, which is charged against income. The methodology for determining the allowance for loan losses is considered a critical accounting policy by management due to the high degree of judgment involved, the subjectivity of the assumptions utilized and the potential for changes in the economic environment that could result in adjustments to the amount of the recorded allowance for loan losses.

Management performs a quarterly evaluation of the adequacy of the allowance for loan losses. We consider a variety of factors in establishing this estimate including, but not limited to, prior loss experience, current economic conditions, trends in nonperforming loans and delinquency rates, the adequacy of the underlying collateral, the financial strength of the borrower, results of internal loan reviews and other relevant factors. This evaluation is inherently subjective as it requires material estimates by management that may be susceptible to significant change based on changes in economic and real estate market conditions.

The Company periodically may agree to modify the contractual terms of loans. When a loan is modified and a concession is made to a borrower experiencing financial difficulty, the modification is considered a troubled debt restructuring (“TDR”). All TDRs are initially classified as impaired.

The allowance consists of specific, general and unallocated components, as further described below.

Specific component. The specific component relates to loans that are classified as impaired. Impairment is measured on a loan by loan basis for the commercial segment (commercial and industrial, commercial real estate and construction) 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 if the loan is collateral dependent. A specific allowance is established when the discounted cash flows (or collateral value) of the impaired loan is lower than the carrying value of the loan. Groups of smaller balance homogenous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual loans in the consumer segment (residential real estate, home equity and consumer loans) for impairment disclosures, unless such loans are subject to a troubled debt restructuring agreement.

The Company has established a Business Banking unit within its Commercial Lending Department. The portfolio is made up of both commercial and industrial loans less than $250,000 and commercial real estate loans less than $500,000 which are managed by exception. This grouping of loans is considered a homogenous pool of loans and collectively evaluated for impairment. Accordingly, the Company does not separately identify individual loans within this unit for impairment disclosures, unless such loans are subject to a troubled debt restructuring agreement.

General component. The general component is based on historical loss experience adjusted for qualitative factors stratified by each of the loan classes: commercial and industrial, commercial real estate, construction, residential real estate, home equity and consumer. Management uses an average of historical losses based on a time frame appropriate to capture relevant loss data for each loan class. This historical loss factor for each loan class is adjusted for the following qualitative factors: the levels/trends in delinquencies and nonaccruals; levels and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of changes in risk selection and underwriting standards and other changes in lending policies, procedures and practices; experience, ability and depth of lending management and staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations. This analysis establishes factors that are applied to each loan class to determine the amount of the general component of the allowance for loan losses. There were no changes in the Company’s policies or methodology pertaining to the general component of the allowance for loan losses during 2013.

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.

Reserve for Unfunded Commitments. The Company also maintains a reserve for unfunded credit commitments to provide for the risk of loss inherent in these arrangements. The reserve is determined using a methodology similar to the analysis of the allowance for loan losses, taking into consideration probabilities of future funding requirements. The reserve for unfunded commitments is included in other liabilities and was $142,000 and $213,000 at December 31, 2013 and 2012, respectively.

Evaluation of the Investment Portfolio for Other-Than-Temporary Impairment. The evaluation of the investment portfolio for other-than-temporary impairment is also a critical accounting estimate. On a quarterly basis, we review securities with a decline in fair value below the amortized cost of the investment to determine whether the decline in fair value is temporary or other-than-temporary. Declines in the fair value of marketable equity securities below their cost that are deemed to be other-than-temporary based on the severity and duration of the impairment are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses for held to maturity and available for sale debt securities, impairment is required to be recognized if (1) we intend to sell the security; (2) it is “more likely than not” that we will be required to sell the security before recovery of its amortized cost basis; or (3) the present value of expected cash flows is not sufficient to recover the entire amortized cost basis. For all impaired held to maturity and available for sale securities that we intend to sell, or more likely than not will be required to sell, the full amount of the other-than-temporary impairment is recognized through earnings. For all other impaired held to maturity or available for sale securities, credit-related other-than-temporary impairment is recognized through earnings, while non-credit related other-than-temporary impairment is recognized in other comprehensive income, net of applicable taxes.

Income Taxes. The Company uses the asset and liability method of accounting for income taxes in which deferred tax assets and liabilities are established for the temporary differences between the financial reporting basis and the tax basis of the Company’s asset and liabilities. The realization of the net deferred tax asset generally depends upon future levels of taxable income and the existence of prior years’ taxable income, to which “carry back” refund claims could be made. A valuation allowance is maintained for deferred tax assets that management estimates are more likely than not to be unrealizable based on available evidence at the time the estimate is made. Significant management judgment is required in determining income tax expense and deferred

tax assets and liabilities. In determining the valuation allowance, the Company uses historical and forecasted future operating results, based upon approved business plans, including a review of the eligible carryforward periods, tax planning opportunities and other relevant considerations. These underlying assumptions can change from period to period. For example, tax law changes or variances in future projected operating performance could result in a change in the valuation allowance. Should actual factors and conditions differ materially from those considered by management, the actual realization of the net deferred tax asset could differ materially from the amounts recorded in the financial statements. If the Company is not able to realize all or part of our net deferred tax asset in the future, an adjustment to the deferred tax asset valuation allowance would be charged to income tax expense in the period such determination was made.

Goodwill and Identifiable Intangible Assets. Goodwill and identifiable intangible assets are recorded as a result of business acquisitions and combinations. These assets are evaluated for impairment annually or whenever events or changes in circumstances indicate the carrying value of these assets may not be recoverable. If the carrying amount exceeds fair value, an impairment charge is recorded to income. The fair value is based on observable market prices, when practicable. Other valuation techniques may be used when market prices are unavailable, including estimated discounted cash flows and market multiples analyses. These types of analyses contain uncertainties because they require management to make assumptions and to apply judgment to estimate industry economic factors and the profitability of future business strategies. In the event of future changes in fair value, the Company may be exposed to an impairment charge that could be material.

Fair Valuation of Financial Instruments. The Company uses fair value measurements to record fair value adjustments to certain financial instruments and to determine fair value disclosures. Trading assets, securities available for sale, and derivative instruments are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, or to establish a loss allowance or write-down based on the fair value of impaired assets. Further, the notes to financial statements include information about the extent to which fair value is used to measure assets and liabilities, the valuation methodologies used and its impact to earnings. Additionally, for financial instruments not recorded at fair value, the notes to financial statements disclose the estimate of their fair value. Due to the judgments and uncertainties involved in the estimation process, the estimates could result in materially different results under different assumptions and conditions.

Comparison of Financial Condition at December 31, 2013 and 2012

Balance Sheet Summary. Total assets increased $79.5 million, or 3.3%, to $2.48 billion at December 31, 2013 from $2.40 billion at December 31, 2012 due to growth in net loans, held to maturity investment securities and interest-bearing deposits, partially offset by a decrease in securities available for sale. Net loans increased $63.7 million, or 3.5%, to $1.87 billion at December 31, 2013 from $1.81 billion at December 31, 2012 due to origination activity, partially offset by normal amortization and repayments. Held to maturity investment securities increased $28.2 million, or 34.0%, to $111.2 million at December 31, 2013 from $83.0 million at December 31, 2012 due to purchases totaling $51.2 million primarily of government-sponsored mortgage-backed securities and industrial revenue bonds, partially offset by maturities, calls and repayments of government-sponsored agency debt and mortgage-backed securities of $22.2 million. Interest-bearing deposits increased $19.0 million reflecting an increase in cash balances at the Federal Reserve Bank. Securities available for sale decreased $29.7 million, or 10.1%, due to calls, maturities and repayments of mortgage-backed securities partially offset by purchases of securities available for sale. At year end, the Company continued to have considerable liquidity consisting of a large amount of marketable loans and investment securities, substantial unused borrowing capacity at the Federal Home Loan Bank and the Federal Reserve Bank and access to funding through the repurchase agreement and brokered deposit markets. The Company’s balance sheet is also supported by a strong capital position, with total stockholders’ equity of $302.8 million, or 12.2% of total assets, at December 31, 2013.

Loans. Net loans increased $63.7 million, or 3.5%, to $1.87 billion at December 31, 2013 from $1.81 billion at December 31, 2012. Commercial real estate loans increased $47.9 million, or 5.9%, to $862.6 million,

primarily attributable to business development efforts and competitive products and pricing. One- to four-family residential mortgage loans increased $24.7 million, or 5.6%, to $466.6 million due to originations of 10- and 15-year loans as a result of promotional efforts and continued lower market interest rates, partially offset by payments and sales of 30-year fixed rate loan originations. Construction loans increased $10.0 million, or 19.0%, to $62.8 million, due to successful business development efforts, including relationships with successful developers, and improving real estate markets in Massachusetts and Connecticut. A significant portion of these loans mature in less than a year and will either convert to permanent financing or pay-off in full. Commercial and industrial loans decreased $13.1 million, or 4.3%, to $293.1 million due to repayments offset by new loan originations. We continued to focus our efforts on growing the commercial real estate and commercial and industrial loan portfolios in order to increase our interest income and improve our net interest rate spread.

Asset Quality. Throughout 2013, economic conditions improved modestly despite the effects of sequestration and the government shutdown. Our asset quality has also been impacted by a strategy adopted several years ago to emphasize the origination of commercial and industrial loans and commercial mortgages. These loans have increased as a percentage of our total loan portfolio in recent years and generally have more risk than one- to four-family residential mortgage loans. Because the repayment of commercial and industrial loans and commercial mortgages depends on the successful management and operation of the borrower’s properties or related businesses, repayment of such loans can be affected by adverse conditions in the real estate market or the local economy.

As a result of the NEBS acquisition, we experienced an increase in non-performing loans and classified assets in 2012 which continue to be somewhat elevated as compared to historic periods. Non-performing loans increased $1.3 million to $16.0 million, or 0.85% of total loans, at December 31, 2013 as compared to $14.7 million, or 0.81% of total loans, at December 31, 2012, primarily as a result of the NEBS acquisition and continued migration of delinquent loans, primarily commercial real estate loans. Including non-performing loans, the Company has identified $87.7 million of classified assets at December 31, 2013 compared to $95.5 million at December 31, 2012. The decrease of $7.8 million in classified assets is due, in large part, to active efforts to exit marginal credits as well as the upgrade of credits which have exhibited improvement. Classified assets include loans that are performing or non-performing, are of lesser quality and are reported as special mention, substandard, doubtful or loss, as well as other real estate owned. At December 31, 2013 and 2012, classified loans primarily consisted of special mention and substandard commercial business loans and commercial mortgages. Commercial real estate loans make up 56.9% of total classified assets while construction loans for single family homes, subdivisions, and condominium developments represent 5.8%. Other real estate owned totaled $2.5 million at December 31, 2013 and comprises twelve properties, of which seven are residential properties, three are commercial and two are manufactured homes. Management cannot predict the extent to which economic conditions may worsen or other factors may impact borrowers and the classified assets. Accordingly, additional loans may become 90 days or more past due, be placed on nonaccrual status, become classified or restructured, or require increased allowance coverage and provision for loan losses.

Deposits. Total deposits increased $98.3 million, or 5.3%, to $1.95 billion at December 31, 2013 from $1.85 billion at December 31, 2012, primarily due to growth in core deposits accounts of $71.7 million, or 6.3%, to $1.21 billion at December 31, 2013 from $1.14 billion at December 31, 2012. The growth in core deposit account balances was driven by competitive products and pricing, attention to excellence in customer service and targeted promotional activities. Certificates of deposit increased by $26.6 million, or $3.8%, to $734.0 million at December 31, 2012 compared to $707.4 million at December 31, 2012 mainly as a result of the issuance of $20.0 million in brokered CDs with a weighted average rate of 1.28% and a weighted average maturity of 3.7 years.

FHLB Advances. FHLB advances decreased $1.9 million, or 1.3%, to $139.7 million at December 31, 2013 as additional advances used to fund loan originations were more than offset by paydowns.

Repurchase Agreements. Repurchase agreements decreased $7.6 million, or 15.6%, to $41.6 million at December 31, 2013 from $49.2 million at December 31, 2012 due to a decrease in overnight customer repurchase agreements.

Total Stockholders’ Equity. Total stockholders’ equity decreased $4.4 million, or 1.4%, to $302.8 million at December 31, 2013 from $307.2 million at December 31, 2012 primarily due to cash dividends paid of $8.5 million, common stock repurchases of $7.3 million and other comprehensive loss of $6.5 million partially offset by net income of $17.4 million.

Comparison of Operating Results for the Years Ended December 31, 2013 and 2012

Net Income. Net income for the year ended December 31, 2013 totaled $17.4 million, or $0.87 per diluted share, compared to net income of $3.6 million, or $0.24 per diluted share, for the same period in 2012. Excluding branch closing costs totaling $987,000, merger-related expenses of $879,000, net gains from sales of securities totaling $227,000, a $206,000 gain related to an investment in a venture capital fund accounted for on a cash basis and the related net tax benefit of $387,000, net income would have been $18.4 million, or $0.92 per diluted share, for the year ended December 31, 2013. Excluding merger-related expenses of $5.0 million, a $4.5 million ESOP plan termination expense, FHLB advance prepayment penalties totaling $227,000, impairment charges on securities of $202,000 and the related tax benefit of $660,000, net income would have been $12.8 million, or $0.83 per diluted share for the year ended December 31, 2012.

Average Balances and Yields. The following table sets forth average balance sheets, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments were made, as the effect thereof was not material. Loan fees are not included in interest income amounts. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield.


	Years Ended December 31,
	2013						2012
	Average Balance		Interest and Dividends		Yield/ Cost		Average Balance		Interest and Dividends			Yield/ Cost
	(Dollars in thousands)
Interest-earning assets:
Loans:
Residential real estate (1)	$	453,511	$	17,067		3.76%	$	331,143	$	14,926			4.51%
Commercial real estate		904,669		45,567		5.04%		551,980		29,717			5.38%
Home equity loans		179,115		6,086		3.40%		144,411		5,152			3.57%
Commercial and industrial		305,046		15,189		4.98%		203,667		9,781			4.80%
Consumer and other		19,977		1,114		5.58%		15,206		825	&nbs

United Financial Bancorp, Inc. 10-K