United Financial Bancorp, Inc. Announces First Quarter Earnings and Quarterly Dividend

HARTFORD, Conn., April 16, 2019 (GLOBE NEWSWIRE) -- United Financial Bancorp, Inc. ("United Financial" or the "Company") (NASDAQ Global Select Stock Market: "UBNK"), the holding company for United Bank (the "Bank"), announced results for the quarter ended March 31, 2019.

The Company reported net income of $12.7 million, or $0.25 per diluted share, for the quarter ended March 31, 2019, compared to net income for the quarter ended December 31, 2018 ("linked quarter") of $12.2 million, or $0.24 per diluted share. The Company reported net income of $15.8 million, or $0.31 per diluted share, for the quarter ended March 31, 2018.

"Despite the challenging operating environment, the United Financial Bancorp, Inc. team is focused on expanding and winning new client relationships, maintaining strong asset quality and ample capital, and providing superior customer service," stated William H.W. Crawford, IV, Chief Executive Officer and President of the Company and the Bank. "Having a talented and dedicated team of employees to serve the needs of our customers and communities continues to be a strong value proposition of the Company and will protect and enhance franchise value."

Balance Sheet

Assets totaled $7.34 billion at March 31, 2019, decreasing $16.9 million from $7.36 billion at December 31, 2018. At March 31, 2019, total available for sale securities were $848.5 million, representing a decrease of $124.8 million, or 12.8%, from the linked quarter. The overall decrease was primarily due to sales of lower yielding collateralized mortgage obligations and municipal securities at a gain during the quarter, and a portion of the proceeds were utilized to pay off maturing Federal Home Loan Bank advances. At March 31, 2019, total loans were $5.73 billion, representing an increase of $75.1 million, or 1.3%, from the linked quarter. Changes to loan balances during the first quarter of 2019 were highlighted by a $33.4 million, or 3.8%, increase in commercial business loans, a $21.1 million, or 1.1%, increase in investor non-owner occupied commercial real estate loans, a $15.6 million, or 3.8%, increase in other consumer loans, a $9.1 million, or 0.7%, increase in residential real estate loans and a $7.2 million, or 8.2%, increase in commercial construction loans.  Slightly offsetting the increased loan balances above were a $7.0 million, or 34.0%, decrease in residential construction loans and a $4.0 million, or 0.9%, decrease in owner-occupied commercial real estate loans from the linked quarter. Loans held for sale also decreased $62.6 million, or 79.5%, from the linked quarter. Total cash and cash equivalents increased $57.2 million, or 58.4%, from the linked quarter as a result of the aforementioned sale of investment securities.

During the quarter ended March 31, 2019, the Company adopted Accounting Standards Update ("ASU") No. 2016-02 - Leases, requiring on-balance sheet reporting for all operating and financing leases, which resulted in the recording of $46.5 million in operating and financing lease right-of-use assets and a corresponding $46.5 million in operating and financing lease liabilities associated with the implementation of the standard.

Deposits totaled $5.66 billion at March 31, 2019 and decreased by $6.3 million, or 0.1%, from $5.67 billion at December 31, 2018. Decreases in deposit balances during the first quarter of 2019 were primarily due to a $97.4 million, or 5.6%, decrease in money market account balances and a $21.8 million, or 2.7%, decrease in non-interest bearing checking deposits, largely due to seasonal outflows that are typical of commercial DDA accounts in the first quarter. Offsetting these decreases was a $61.0 million, or 7.1%, increase in NOW checking account balances and a $51.8 million, or 2.9%, increase in certificates of deposit balances.

Total Federal Home Loan Bank advances decreased by $60.2 million, or 7.6%, over the linked quarter as the Company utilized proceeds from sales of investment securities to pay off maturing advances as noted above.

Investment in D.C. Solar Tax-Advantaged Funds

The Company continues to monitor developments in its investments in Solar Eclipse Investment Fund X, LLC, Solar Eclipse Investment Fund XV, LLC, and Solar Eclipse Investment Fund XXII, LLC ("LLC investments"), all of which are borrowers of and lessees to D.C. Solar Solutions, Inc., D.C. Solar Distribution, Inc., respectively. In late January and early February, 2019, D.C. Solar Solutions, Inc., D.C. Solar Distribution, Inc. and several affiliated companies filed for Chapter 11 bankruptcy. On March 22, 2019, all cases were converted to cases under Chapter 7 of the Bankruptcy Code. At this time, no measurable loss has been identified, but the Company believes a loss is more likely than not. The Company has provided disclosure in its press release deck as it pertains to the impact on capital if the Company were to recognize a complete loss ($41.7 million) on the LLC investments. Given the facts and circumstances that we are aware of at the time of the filing of this release, the Company does not believe a full loss or total tax benefit recapture to be likely.

Net Interest Income

Net interest income decreased by $1.4 million, or 2.9%, on a linked quarter basis, to $46.9 million, primarily attributable to an increase in interest expense of $2.4 million, or 10.1%, to $26.3 million, offset by an increase in loan interest income of $1.5 million, or 2.4%, to $64.8 million. Average interest-earning assets increased by $74.9 million, or 1.1%, on a linked quarter basis, primarily due to growth in average loan balances, which increased by $88.9 million, or 1.6%. Average loan balance growth was driven by a $56.2 million, or 2.4%, increase in average commercial real estate loans, a $27.8 million, or 7.1%, increase in average other consumer loans and a $27.1 million, or 3.2%, increase in average commercial business loans. Slightly offsetting the increases was a $16.8 million, or 1.2%, decrease in average residential real estate loans, a $3.0 million, or 0.5%, decrease in average home equity loans and a $2.4 million, or 2.1%, decrease in average construction loans.

Interest expense increased by $2.4 million, or 10.1%, to $26.3 million during the first quarter of 2019, from $23.9 million in the linked quarter. Average interest-bearing deposit balances increased by $41.4 million, or 0.9%, on a linked quarter basis, primarily driven by a $64.5 million, or 3.7%, increase in average certificates of deposit, which was slightly offset by a $16.3 million, or 0.6%, decrease in average NOW and money market account balances and a $6.7 million, or 1.3%, decrease in average savings account balances. Average non-interest bearing deposits decreased by $23.7 million, or 3.1%, as compared to the linked quarter. Average Federal Home Loan Bank advances increased by $67.9 million, or 9.3%.

The tax-equivalent net interest margin decreased by nine basis points to 2.81% in the first quarter of 2019, from 2.90% in the linked period. The decline in the tax-equivalent net interest margin was driven by an 18 basis point increase in the cost of interest-bearing liabilities, which was partially offset by a six basis point increase in the yield of interest-earning assets. The interest-earning asset yield improvement was largely driven by a 29 basis point increase in the yield on construction loans, a 20 basis point increase in the yield on commercial real estate loans, a 16 basis point increase in the yield on home equity loans, a three basis point increase in the yield on residential real estate loans, a two basis point increase in the yield on commercial business loans and a one basis point increase in the yield on other consumer loans. Slightly offsetting the increase in loan yields was a 30 basis point decline in the yield of the investment portfolio, largely resulting from the implementation of ASU No. 2017-08 - Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities, which caused lower yields on the Company's tax-exempt municipal bonds. The total cost of funds increased by 13 basis points to 1.61% in the first quarter of 2019 driven by a 16 basis point increase in the cost of interest-bearing deposits and a 22 basis point increase in the cost of Federal Home Loan Bank advances.

Provision for Loan Losses

The provision for loan losses totaled $2.0 million for the quarter ended March 31, 2019 as compared to $2.6 million for the linked quarter. Net charge-offs for the quarter ended March 31, 2019 totaled $1.6 million, or 0.11%, as a percentage of average loans outstanding, as compared to $891,000, or 0.06%, as a percentage of average loans for the quarter ended December 31, 2018. Factors considered in the provision for loan losses include, but are not limited to, historical charge-offs, the composition of the portfolio, the current level of non-performing loans and charge-offs, local and national economic and credit conditions, the direction of real estate values and delinquency trends.

Non-Interest Income

Total non-interest income decreased by $513,000, or 5.4%, to $9.0 million for the quarter ended March 31, 2019 from $9.5 million in the linked quarter. The decrease in the first quarter's non-interest income was driven primarily by a $1.3 million, or 17.0%, decrease in service charges and fee income resulting from lower swap fee income and non-sufficient fund fees as compared to the linked quarter, offset by an increase of $712,000 in net gain from sales of securities and an increase of $429,000, or 28.3%, in bank-owned life insurance income as compared to the linked quarter.

Non-Interest Expense

Non-interest expense for the quarter ended March 31, 2019 totaled $39.2 million and decreased by $4.5 million, or 10.4%, from the linked quarter. The decrease in non-interest expense during the quarter was primarily due to decreases in salaries and employee benefits, occupancy and equipment, and service bureau fees. These decreases were slightly offset by an increase in professional fees as compared to the linked quarter.

The primary driver of the decrease in non-interest expense was a $3.1 million, or 12.4%, decrease in salaries and employee benefits expense as compared to the linked quarter.  This decrease was largely due to a $2.2 million severance expense (pre-tax) that was recorded in the quarter ended December 31, 2018 as a result of the Company's shift in its mortgage banking strategy, which reduced staffing in our mortgage division, as well as decreases in commissions and incentives and other benefits as compared to the linked quarter. Other notable decreases include an $844,000, or 13.2%, decrease in occupancy and equipment and a $272,000, or 11.8%, decrease in service bureau fees during the quarter ended March 31, 2019.

Asset Quality

Asset quality remained strong and stable for the period, with non-performing assets decreasing by $1.4 million to $30.6 million at March 31, 2019 from $32.1 million at December 31, 2018. The ratio of non-performing assets to total assets for the quarter ended March 31, 2019 was 0.42%, as compared to 0.44% in the linked quarter.

Capital

The Company reported Tangible Common Equity ("TCE") of $601.8 million, or 8.2% of average assets, for the quarter ended March 31, 2019. Tangible book value per share increased to $11.78 at March 31, 2019 from $11.54 at December 31, 2018. The increase was primarily driven by an increase in accumulated other comprehensive income as a result of an increase in the market value of the Company's investment portfolio as compared to the previous quarter as well as the impact of the Company's net income of $12.7 million, offset by the cash dividend payment to shareholders of $0.12 per share and the impact of the adoption of ASU No. 2017-08 during the quarter, which resulted in a $10.2 million cumulative effect adjustment to beginning retained earnings. Book value per share at March 31, 2019 was $14.17, as compared to $13.94 in the linked quarter.

Dividend

The Board of Directors declared a cash dividend on the Company's common stock of $0.12 per share to shareholders of record at the close of business on April 26, 2019 and payable on May 8, 2019. This dividend equates to a 3.17% annualized yield based on the $15.12 average closing price of the Company's common stock in the first quarter of 2019. The Company has paid dividends for 52 consecutive quarters.

Investor Conference Call

United Financial Bancorp, Inc. will host a conference call on Wednesday, April 17, 2019 at 10:00 a.m. Eastern Time (ET) to discuss the Company's first quarter results. Those wishing to participate in the call may dial toll-free 1-800-544-8281. A telephone replay of the call will be available through May 1, 2019 by calling 1-877-344-7529 and entering conference number 10130129. A podcast will be available on the Company's website for an extended period of time, as well as on the Company's investor relations app.

Investor Presentation

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

About United Financial Bancorp, Inc.

United Financial Bancorp, Inc. is the holding company for United Bank, a full service financial services firm offering a complete line of commercial, small business, wealth management and consumer banking products and services to customers throughout Connecticut, Massachusetts and Rhode Island. United Bank is a financially strong, leading New England bank headquartered in Hartford, Connecticut with more than 50 branches in three states. United Financial Bancorp, Inc. trades on the NASDAQ Global Select Stock Exchange under the ticker symbol "UBNK." At March 31, 2019, the Company had $7.34 billion in assets.

For more information about United Bank's services and products call (866) 959-BANK or visit www.bankatunited.com. For more information about United Financial Bancorp, Inc., visit www.unitedfinancialinc.com or download the Company's free Investor Relations app on your Apple or Android device. To download United Financial Bancorp, Inc.'s investor relations app on your iPhone or on your iPad, which offers access to SEC documents, press releases, videos, audiocasts and more, please visit: https://itunes.apple.com/WebObjects/MZStore.woa/wa/viewSoftware?id=725271098&mt=8
or https://play.google.com/store/apps/details?id=com.theirapp.ubnk for your Android mobile device.

Non-GAAP Financial Measures

This document contains certain non-GAAP financial measures in addition to results presented in accordance with Generally Accepted Accounting Principles ("GAAP"). These non-GAAP measures provide supplemental perspectives on operating results, performance trends, and financial condition. They are not a substitute for GAAP measures; they should be read and used in conjunction with the Company's GAAP financial information. A reconciliation of non-GAAP financial measures to GAAP measures is included in the accompanying financial tables. These non-GAAP financial measures provide information for investors to effectively analyze financial trends of our business activities, and to enhance comparability with peers across the financial services sector.

Forward Looking Statements

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

United Financial Bancorp, Inc. and Subsidiaries
Consolidated Statements of Net Income
(Unaudited)

United Financial Bancorp, Inc. and Subsidiaries
Consolidated Statements of Net Income
(Unaudited)

United Financial Bancorp, Inc. and Subsidiaries
Consolidated Statements of Condition
(Unaudited)

United Financial Bancorp, Inc. and Subsidiaries
Selected Financial Highlights
(Dollars In Thousands, Except Share Data)
(Unaudited)

(1) The cost of funds ratio represents interest incurred on liabilities as a percentage of average non-interest bearing deposits and interest-bearing liabilities.
(2) Non-GAAP ratios are not financial measurements required by generally accepted accounting principles; however, management believes such information is useful to investors in evaluating Company performance. Calculations of these non-GAAP metrics are provided after the reconciliations of non-GAAP financial measures and appear on page F-9 through page F-11.

United Financial Bancorp, Inc. and Subsidiaries
Average Balance Sheets, Interest and Yields/Costs
(Dollars In Thousands)
(Unaudited)

(1)  Tax-equivalent net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.
(2)  Tax-equivalent net interest rate margin represents tax-equivalent net interest income divided by average interest-earning assets.

United Financial Bancorp, Inc. and Subsidiaries
Average Balance Sheets, Interest and Yields/Costs
(Dollars In Thousands)
(Unaudited)

(1)  Tax-equivalent net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.
(2)  Tax-equivalent net interest rate margin represents tax-equivalent net interest income divided by average interest-earning assets.

United Financial Bancorp, Inc. and Subsidiaries
Reconciliation of Non-GAAP Financial Measures
(Dollars In Thousands)
(Unaudited)

In addition to evaluating the Company's results of operations in accordance with GAAP, management periodically supplements this evaluation with an analysis of certain non-GAAP financial measures. These non-GAAP measures are intended to provide the reader with additional perspectives on operating results, financial condition, and performance trends, while facilitating comparisons with the performance of other financial institutions. Non-GAAP financial measures are not a substitute for GAAP measures, rather, they should be read and used in conjunction with the Company's GAAP financial information.

The efficiency ratio is used as a common measure by banks as a comparable metric to understand the Company's expense structure relative to its total revenue; in other words, for every dollar of total revenue we recognize, how much of that dollar is expended. In order to improve the comparability of the ratio to our peers, we remove non-core items. To improve transparency, and acknowledging that banks are not consistent in their definition of the efficiency ratio, we include our calculation of this non-GAAP measure.

Pre-provision net revenue is a measure that the Company uses to understand fundamental operating performance before credit related expenses and tax expense. It is often expressed as a ratio relative to average assets which demonstrates the "core" performance and can be viewed as an alternative measure of how efficiently the Company services its asset base.

Return on average tangible common equity is used by management and readers of our financial statements to understand how efficiently the Company is deploying its common equity. Companies that are able to demonstrate more efficient use of common equity are more likely to be viewed favorably by current and prospective investors.

The Company believes that disclosing these non-GAAP metrics is both useful internally and is expected by our investors and analysts in order to understand the overall performance of the Company. Other companies may calculate and define their supplemental data differently. A reconciliation of GAAP financial measures to non-GAAP measures and other performance ratios, as adjusted, are included on pages F-9 through F-11 in the following press release tables:

(1) Represents acquired loans that were recorded at fair value. These loans carry no allowance for loan losses for the periods reflected above.