United Financial Bancorp, Inc. Announces Third Quarter Earnings

HARTFORD, Conn., Oct. 18, 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 September 30, 2019.

The Company reported net income of $12.7 million, or $0.25 per diluted share, for the quarter ended September 30, 2019, compared to a net loss for the quarter ended June 30, 2019 ("linked quarter") of $3.2 million, or $0.06 per diluted share. The net loss for the linked quarter was primarily due to an impairment charge recorded on the Company's investments in D.C. Solar LLCs of $6.3 million (after tax) and the related establishment of an additional tax reserve of $8.7 million during the three months ended June 30, 2019.  The Company reported net income of $16.3 million, or $0.32 per diluted share, for the quarter ended September 30, 2018.

On July 15, 2019, United Financial and People's United Financial, Inc. announced the signing of a definitive agreement and plan of merger pursuant to which United Financial will merge with and into People's United Financial, Inc., with People's United Financial, Inc. surviving the merger, in an all stock transaction valued at approximately $759.0 million as of July 15, 2019. Consummation of the merger is expected to be effective on November 1, 2019, subject to receipt of the requisite approval by United Financial's shareholders and satisfaction of other customary closing conditions. A special meeting of United Financial's shareholders to consider and vote upon the approval of the merger and related matters is scheduled to be held on October 22, 2019.

Balance Sheet

Assets totaled $7.18 billion at September 30, 2019, representing a decrease of $155.9 million, or 2.1%, from $7.34 billion at June 30, 2019. At September 30, 2019, total available for sale securities were $823.2 million, representing a decrease of $17.3 million, or 2.1%, from the linked quarter. The overall decrease was primarily due to sales of lower yielding, higher risk weighted securities, offset by purchases of various mortgage-backed securities and corporate bonds. At September 30, 2019, total loans were $5.68 billion, representing a decrease of $79.9 million, or 1.4%, from the linked quarter. Changes to loan balances during the third quarter of 2019 were highlighted by a $74.0 million, or 8.1%, decrease in commercial business loans, a $22.3 million, or 3.9%, decrease in home equity loans, a $7.4 million, or 58.7%, decrease in residential construction loans, a $6.5 million, or 0.3%, decrease in investor non-owner occupied commercial real estate loans, a $5.6 million, or 0.4%, decrease in residential real estate loans and a $2.0 million, or 0.4%, decrease in owner-occupied commercial real estate loans from the linked quarter.  Slightly offsetting the decreased loan balances above were a $26.8 million, or 6.1%, increase in other consumer loans and an $11.1 million, or 13.8%, increase in commercial construction loans.  Loans held for sale decreased $27.7 million, or 71.4%, from the linked quarter due to a change in pipeline delivery terms. Total cash and cash equivalents decreased $12.3 million, or 10.7%, from the linked quarter as the Company utilized excess cash to pay off maturing Federal Home Loan Bank advances.

Deposits totaled $5.65 billion at September 30, 2019 and decreased by $74.5 million, or 1.3%, from $5.73 billion at June 30, 2019. Decreases in deposit balances during the third quarter of 2019 were primarily due to a $116.2 million, or 6.4%, decrease in certificates of deposit balances, a $20.8 million, or 4.3%, decrease in regular savings accounts and a $5.0 million, or 0.6%, decrease in non-interest bearing checking deposits.  Offsetting these decreases was a $48.6 million, or 5.4%, increase in NOW checking account balances and an $18.7 million, or 1.1%, increase in money market account balances in the third quarter.

Total Federal Home Loan Bank advances decreased by $98.2 million, or 15.1%, over the linked quarter as the Company utilized excess cash generated from proceeds from loan and security cash flows 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. and 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.

During the linked quarter, the Company recorded an impairment charge to the investment in the LLCs of $6.3 million (after tax) and an additional tax reserve of $8.7 million to reflect the loss and the associated uncertain tax positions.  The net impact to net income for the linked quarter was $15.0 million.  There was no additional measurable loss identified during the three months ended September 30, 2019. Given the facts and circumstances that we are aware of at the time of the issuance of this release, the Company does not believe a full loss or total tax benefit reversal to be likely.

Net Interest Income

Net interest income decreased by $604,000, or 1.3%, on a linked quarter basis, to $46.4 million, primarily attributable to a decrease in interest and dividend income of  $900,000, or 1.2%, to $72.5 million, being partially offset by a decrease in interest expense of $296,000, or 1.1%, to $26.1 million. Average interest-earning assets decreased by $26.2 million, or 0.4%, on a linked quarter basis, primarily due to a $20.4 million, or 33.8%, decrease in average other earning asset balances, as well as a $3.1 million, or 9.0%,  decrease in average FHLB stock and a $2.7 million, or 0.3%, decrease in average investments as a result of sales of lower yielding, higher risk weighted securities.

Interest expense decreased by $296,000, or 1.1%, to $26.1 million during the third quarter of 2019, from $26.4 million in the linked quarter. Average interest-bearing deposit balances increased by $10.2 million, or 0.2%, on a linked quarter basis, primarily driven by a $93.0 million, or 3.7%, increase in average NOW and money market account balances, offset by a $61.3 million, or 3.3%, decrease in average certificates of deposit and a $21.5 million, or 4.3%, decrease in average savings account balances. Average non-interest bearing deposits increased by $14.0 million, or 1.8%, as compared to the linked quarter. Average Federal Home Loan Bank advances decreased by $85.5 million, or 12.3%.

The tax-equivalent net interest margin decreased by 5 basis points to 2.77% in the third quarter of 2019, from 2.82% in the linked period. The decrease in the tax-equivalent net interest margin was driven by a 7 basis point decrease in the yield of interest-earning assets slightly offset by a 1 basis point decrease in the cost of interest-bearing liabilities. The interest-earning asset yield decline was largely driven by a 25 basis point decrease in the yield on commercial business loans, a 12 basis point decrease in the yield on commercial real estate loans and a 6 basis point decrease in the yield on home equity loans.  In addition, there was a 37 basis point decrease in the yield on Federal Home Loan Bank Stock and a 15 basis point decrease in the yield on investment securities. These decreases were offset by an 11 basis point increase in the yield on residential real estate loans, an 8 basis point increase in the yield on construction loans, a 5 basis point increase in the yield on other earning assets and a 2 basis point increase in the yield on other consumer loans. The total cost of funds remained unchanged at 1.64% as compared to the linked quarter.

Provision for Loan Losses

The provision for loan losses totaled $2.0 million for the quarter ended September 30, 2019 as compared to $2.5 million for the linked quarter. Net charge-offs for the quarter ended September 30, 2019 totaled $1.5 million, or 0.10%, as a percentage of average loans outstanding, as compared to $1.3 million, or 0.09%, as a percentage of average loans for the quarter ended June 30, 2019. 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 increased by $8.3 million to $9.2 million for the quarter ended September 30, 2019 from $840,000 in the linked quarter. The increase in the third quarter's non-interest income was driven primarily by a $7.7 million decrease in net loss on limited partnership investments as compared to the linked quarter, due mainly to the $7.8 million impairment charge on the D.C. Solar LLC investments recorded in the linked quarter as discussed above. There was no similar impairment recorded during the quarter ended September 30, 2019.  Other increases included a $933,000, or 227.6%, increase in income from mortgage banking activities and an increase of $493,000, or 32.4%, in bank-owned life insurance income as compared to the linked quarter.  These increases were offset by a decrease of $922,000, or 12.2%, in service charges and fee income primarily resulting from lower swap fee income as compared to the linked quarter.

Non-Interest Expense

Non-interest expense for the quarter ended September 30, 2019 totaled $38.6 million and decreased by $903,000, or 2.3%, from the linked quarter. The decrease in non-interest expense during the quarter was driven by an $832,000, or 108.2%, decrease in FDIC insurance assessment expense due to receipt of FDIC credits, a $378,000, or 1.7%, decrease in salaries and employee benefits expense and a $302,000, or 5.1%, decrease in other non-interest expense.  These decreases were offset by a $543,000, or 22.5%, increase in professional fees largely due to legal expenses pertaining to the proposed acquisition by People's United Financial, Inc. as compared to the linked quarter.

Provision for Income Taxes

The provision for income taxes was $2.3 million for the quarter ended September 30, 2019 as compared to $9.2 million in the linked quarter.  The effective tax rate was 15.0% at September 30, 2019 as compared to 154.9% at June 30, 2019.  The effective tax rate is lower compared to the linked quarter due to the recognition of uncertain tax positions of $8.7 million associated with D.C. Solar LLC investments during the linked quarter as discussed above.

Asset Quality

Asset quality remained strong and stable for the period, with non-performing assets decreasing by $1.3 million to $30.7 million at September 30, 2019 from $32.0 million at June 30, 2019. The ratio of non-performing assets to total assets for the quarter ended September 30, 2019 was 0.43%, as compared to 0.44% in the linked quarter.

Capital

The Company reported Tangible Common Equity ("TCE") of $608.7 million, or 8.4% of average assets, for the quarter ended September 30, 2019. Tangible book value per share increased to $11.90 at September 30, 2019 from $11.71 at June 30, 2019. The increase was primarily driven by the impact of the Company's net income of $12.7 million and 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, offset by the cash dividend payment to shareholders of $0.12 per share during the quarter. Book value per share at September 30, 2019 was $14.27, as compared to $14.09 in the linked quarter.

Dividend

On October 9, 2019, the Board of Directors of United Financial Bancorp, Inc. declared a cash dividend of $0.12 per share to shareholders of record at the close of business on October 21, 2019, payable on October 23, 2019.

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 September 30, 2019, the Company had $7.18 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 the proposed merger with People's United Financial, Inc., 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, delays or difficulties in obtaining the requisite approvals for the merger with People's United Financial, Inc., 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 pages F-11 and F-12.

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
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-10 through F-12 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.