UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



ý		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended ~~March 31,~~June 30, 2017.

Commission File Number: 001-35028

United Financial Bancorp, Inc.

(Exact name of registrant as specified in its charter)



Connecticut		27-3577029
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

45 Glastonbury Boulevard, Glastonbury, Connecticut		06033
(Address of principal executive offices)		(Zip Code)

(860) 291-3600

(Registrant’s telephone number, including area code)

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 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ý Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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 prior that the registrant was required to submit and post such files). Yes ý No ¨

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. 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	ý

Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	¨

		Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12B-2 of the Act). Yes ¨ No ý

As of ~~April 28,~~July 31, 2017, there were ~~50,758,202~~50,791,943 shares of Registrant’s no par value common stock outstanding.

Table of Contents



		Page
Part I - FINANCIAL INFORMATION

Item 1.	Interim Financial Statements (Unaudited)

	Consolidated Statements of Condition as of ~~March 31,~~June 30, 2017 and December 31, 2016	3

	Consolidated Statements of Net Income for the three and six months ended ~~March 31,~~June 30, 2017 and 2016	4

	Consolidated Statements of Comprehensive Income for the three and six months ended ~~March 31,~~June 30, 2017 and 2016	5

	Consolidated Statements of Changes in Stockholders’ Equity for the ~~three~~six months ended ~~March 31,~~June 30, 2017 and 2016	6

	Consolidated Statements of Cash Flows for the ~~three~~six months ended ~~March 31,~~June 30, 2017 and 2016	7

	Notes to Unaudited Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4347

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	6571

Item 4.	Controls and Procedures	6672

Part II - OTHER INFORMATION

Item 1.	Legal Proceedings	6672

Item 1A.	Risk Factors	6672

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6773

Item 3.	Defaults Upon Senior Securities	6773

Item 4.	Mine Safety Disclosures	6773

Item 5.	Other Information	6773

Item 6.	Exhibits	6773

SIGNATURES		6975

Exhibits

Part 1 - FINANCIAL INFORMATION

Item 1 - Interim Financial Statements

United Financial Bancorp, Inc. and Subsidiaries

Consolidated Statements of Condition

(Unaudited)


	March 31, 2017			December 31, 2016			June 30, 2017			December 31, 2016
	(In thousands, except share data)						(In thousands, except share data)
ASSETS
Cash and due from banks	$	45,279		$	47,248		$	57,137		$	47,248
Short-term investments	39,381			43,696			17,714			43,696
Total cash and cash equivalents	84,660			90,944			74,851			90,944
Available-for-sale securities - at fair value	1,075,729			1,043,411			1,073,384			1,043,411
Held-to-maturity securities - at amortized cost	13,937			14,038			13,792			14,038
Loans held for sale	87,031			62,517			157,487			62,517
Loans receivable (net of allowance for loan losses of $43,304 at March 31, 2017 and $42,798 at December 31, 2016)	4,913,953			4,870,552
Loans receivable (net of allowance for loan losses of $45,062 at June 30, 2017 and $42,798 at December 31, 2016)							5,024,532			4,870,552
Federal Home Loan Bank of Boston stock	52,707			53,476			54,760			53,476
Accrued interest receivable	19,126			18,771			19,751			18,771
Deferred tax asset, net	37,040			39,962			27,034			39,962
Premises and equipment, net	51,299			51,757			54,480			51,757
Goodwill	115,281			115,281			115,281			115,281
Core deposit intangible	5,517			5,902			5,164			5,902
Cash surrender value of bank-owned life insurance	169,007			167,823			170,144			167,823
Other assets	71,333			65,086			85,503			65,086
Total assets	$	6,696,620		$	6,599,520		$	6,876,163		$	6,599,520

LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Deposits:
Non-interest-bearing	$	690,516		$	708,050		$	721,917		$	708,050
Interest-bearing	4,099,843			4,003,122			4,271,562			4,003,122
Total deposits	4,790,359			4,711,172			4,993,479			4,711,172
Mortgagors’ and investors’ escrow accounts	10,925			13,354			15,045			13,354
Advances from the Federal Home Loan Bank	1,008,942			1,046,712			990,206			1,046,712
Other borrowings	171,111			122,907			148,611			122,907
Accrued expenses and other liabilities	49,300			49,509			49,358			49,509
Total liabilities	6,030,637			5,943,654			6,196,699			5,943,654

Stockholders’ equity:
Preferred stock (no par value; 2,000,000 authorized; no shares issued)	—			—			—			—
Common stock (no par value; authorized 120,000,000 shares; 50,738,221 and 50,786,671 shares issued and outstanding, at March 31, 2017 and December 31, 2016, respectively)	531,275			531,848
Common stock (no par value; authorized 120,000,000 shares; 50,768,032 and 50,786,671 shares issued and outstanding, at June 30, 2017 and December 31, 2016, respectively)							531,918			531,848
Additional paid-in capital	7,498			7,227			7,990			7,227
Unearned compensation - ESOP	(5,637		)	(5,694		)	(5,580		)	(5,694		)
Retained earnings	145,466			137,838			155,580			137,838
Accumulated other comprehensive loss, net of tax	(12,619		)	(15,353		)	(10,444		)	(15,353		)
Total stockholders’ equity	665,983			655,866			679,464			655,866
Total liabilities and stockholders’ equity	$	6,696,620		$	6,599,520		$	6,876,163		$	6,599,520

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

United Financial Bancorp, Inc. and Subsidiaries

Consolidated Statements of Net Income

(Unaudited)


	For the Three Months Ended March 31,						For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2017			2016			2017			2016			2017			2016
	(In thousands, except share and per share data)						(In thousands, except share and per share data)
Interest and dividend income:
Loans	$	46,493		$	45,472		$	49,674		$	43,556		$	96,167		$	89,028
Securities - taxable interest	5,510			5,096			5,793			4,926			11,303			10,022
Securities - non-taxable interest	2,254			2,010			2,355			2,051			4,609			4,061
Securities - dividends	808			923			689			1,021			1,497			1,944
Interest-bearing deposits	101			73			51			67			152			140
Total interest and dividend income	55,166			53,574			58,562			51,621			113,728			105,195
Interest expense:
Deposits	6,819			6,266			7,603			6,382			14,422			12,648
Borrowed funds	4,050			3,906			4,631			3,743			8,681			7,649
Total interest expense	10,869			10,172			12,234			10,125			23,103			20,297
Net interest income	44,297			43,402			46,328			41,496			90,625			84,898
Provision for loan losses	2,288			2,688			2,292			3,624			4,580			6,312
Net interest income after provision for loan losses	42,009			40,714			44,036			37,872			86,045			78,586
Non-interest income:
Service charges and fees	5,418			4,594			6,834			4,359			12,252			8,953
Gain on sales of securities, net	457			1,452			95			367			552			1,819
Income from mortgage banking activities	1,321			860			1,830			2,331			3,151			3,191
Bank-owned life insurance income	1,207			818			1,149			814			2,356			1,632
Net loss on limited partnership investments	(80		)	(936		)	(638		)	(1,504		)	(718		)	(2,440		)
Other income (loss)	182			(61		)
Other income							206			165			388			104
Total non-interest income	8,505			6,727			9,476			6,532			17,981			13,259
Non-interest expense:
Salaries and employee benefits	19,730			17,791			19,574			20,013			39,304			37,804
Service bureau fees	2,103			2,029			1,943			2,230			4,046			4,259
Occupancy and equipment	4,469			3,900			3,657			3,850			8,126			7,750
Professional fees	1,309			881			952			887			2,261			1,768
Marketing and promotions	712			592			1,237			1,023			1,949			1,615
FDIC insurance assessments	679			939			796			1,042			1,475			1,981
Core deposit intangible amortization	385			433			353			401			738			834
FHLBB prepayment penalties	—			1,454			—			—			—			1,454
Other	5,308			5,744			6,467			5,235			11,775			10,979
Total non-interest expense	34,695			33,763			34,979			34,681			69,674			68,444
Income before income taxes	15,819			13,678			18,533			9,723			34,352			23,401
Provision for income taxes	2,093			1,784			2,333			665			4,426			2,449
Net income	$	13,726		$	11,894		$	16,200		$	9,058		$	29,926		$	20,952

Net income per share:
Basic	$	0.27		$	0.24		$	0.32		$	0.18		$	0.60		$	0.42
Diluted	$	0.27		$	0.24		$	0.32		$	0.18		$	0.59		$	0.42
Weighted-average shares outstanding:
Basic	50,257,825			49,423,218			50,217,212			49,623,472			50,237,406			49,523,345
Diluted	51,029,795			49,652,632			50,839,091			49,946,639			50,887,124			49,802,679

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

United Financial Bancorp, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)


	For the Three Months Ended March 31,						For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2017			2016			2017			2016			2017			2016
	(In thousands)						(In thousands)
Net income	$	13,726		$	11,894		$	16,200		$	9,058		$	29,926		$	20,952
Other comprehensive income:
Securities available for sale:
Unrealized holding gains	3,980			10,569			5,082			12,955			9,062			23,524
Reclassification adjustment for gains realized in operations (1)	(457		)	(1,452		)	(95		)	(367		)	(552		)	(1,819		)
Net unrealized gains	3,523			9,117			4,987			12,588			8,510			21,705
Tax effect - expense	(1,265		)	(3,284		)	(1,792		)	(4,524		)	(3,057		)	(7,808		)
Net-of-tax amount - securities available for sale	2,258			5,833			3,195			8,064			5,453			13,897
Interest rate swaps designated as cash flow hedges:
Unrealized gains (losses)	158			(9,535		)
Reclassification adjustment for expense realized in operations (2)	440			619
Net unrealized gains (losses)	598			(8,916		)
Tax effect - (expense) benefit	(215		)	3,212
Unrealized losses							(2,100		)	(3,139		)	(1,942		)	(11,436		)
Reclassification adjustment for expense (benefit) recognized in interest expense (2)							363			(561		)	803			(1,180		)
Net unrealized losses							(1,737		)	(3,700		)	(1,139		)	(12,616		)
Tax effect - benefit							625			1,333			410			4,545
Net-of-tax amount - interest rate swaps	383			(5,704		)	(1,112		)	(2,367		)	(729		)	(8,071		)
Pension and Post-retirement plans:
Reclassification adjustment for prior service costs recognized in net periodic benefit cost ~~(3)~~	2			—			1			3			3			3
Reclassification adjustment for losses recognized in net periodic benefit cost ~~(4)~~(3)	143			125			143			123			286			248
Net change in losses and prior service costs	145			125			144			126			289			251
Tax effect - benefit	(52		)	(45		)
Tax effect - expense							(52		)	(45		)	(104		)	(90		)
Net-of-tax amount - pension and post-retirement plans	93			80			92			81			185			161
Total other comprehensive income	2,734			209			2,175			5,778			4,909			5,987
Comprehensive income	$	16,460		$	12,103		$	18,375		$	14,836		$	34,835		$	26,939

(1)

Amounts are included in gain on sales of securities, net in the unaudited Consolidated Statements of Net Income. Income tax expense associated with the reclassification adjustment was ~~$165~~$34 and ~~$523~~$132 for the three months ended ~~March 31,~~June 30, 2017 and 2016, respectively. Income tax expense associated with the reclassification adjustment was $199 and $655 for the six months ended June 30, 2017 and 2016, respectively.

(2)

Amounts are included in borrowed funds expense in the unaudited Consolidated Statements of Net Income. Income tax ~~benefit~~expense (benefit) associated with the reclassification adjustment for three months ended June 30, 2017 and 2016 was $(131) and $202, respectively. Income tax expense (benefit) associated with the reclassification adjustment for the ~~three~~six months ended ~~March 31,~~June 30, 2017 and 2016 was ~~$159~~$(289) and ~~$223,~~$425, respectively.


(3)	Amounts are included in salaries and employee benefits expense in the unaudited Consolidated Statements of Net Income. Income tax benefit associated with the reclassification adjustment for prior service costs for the three months ended March 31, 2017 and 2016 was $1 and $0 , respectively.

~~(4)~~

Amounts are included in salaries and employee benefits expense in the unaudited Consolidated Statements of Net Income. Income tax benefit associated with the reclassification adjustment for losses recognized in net periodic benefit cost for the three months ended ~~March 31,~~June 30, 2017 and 2016 was ~~$51~~$52 and ~~$45,~~$44 , respectively. Income tax benefit associated with the reclassification adjustment for losses recognized in the net periodic benefit cost for the six months ended June 30, 2017 and 2016 was $103 and $89, respectively.

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

United Financial Bancorp, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)


	Common Stock					Additional Paid-in Capital				Unearned Compensation - ESOP				Retained Earnings			Accumulated Other Comprehensive Loss				Total Stockholders’ Equity			Common Stock						Additional Paid-in Capital				Unearned Compensation - ESOP				Retained Earnings				Accumulated Other Comprehensive Loss				Total Stockholders’ Equity
	Shares		Amount							Unearned Compensation - ESOP			Shares				Accumulated Other Comprehensive Loss			Amount										Additional Paid-in Capital				Unearned Compensation - ESOP				Retained Earnings				Accumulated Other Comprehensive Loss				Total Stockholders’ Equity
	(In thousands, except share data)																							(In thousands, except share data)
Balance at December 31, 2016	50,786,671		$	531,848		Additional Paid-in Capital			$	7,227			$	Retained Earnings	(5,694	)	$	137,838			Total Stockholders’ Equity		$	(15,353	)	$	655,866		50,786,671			$	531,848			$	7,227			$	(5,694	)		$	137,838			$	(15,353	)	$	655,866
Comprehensive income	—		—			—				—				13,726			2,734				16,460			—		—				—				—				29,926				4,909				34,835
Common stock repurchased	(80,000	)	(1,312		)	—				—				—			—				(1,312		)	(80,000	)	(1,312		)		—				—				—				—				(1,312		)
Stock-based compensation expense	—		—			697				—				—			—				697			—		—				1,486				—				—				—				1,486
ESOP shares released or committed to be released	—		—			44				57				—			—				101			—		—				83				114				—				—				197
Shares issued for stock options exercised	38,068		694			(318		)		—				—			—				376			74,522		1,337				(564		)		—				—				—				773
Shares issued for restricted stock grants	2,517		45			(45		)		—				—			—				—			1,098		45				(45		)		—				—				—				—
Cancellation of shares for tax withholding	(9,035	)	—			(107		)		—				—			—				(107		)	(14,259	)	—				(197		)		—				—				—				(197		)
Dividends paid ($0.12 per common share)	—		—			—				—				(6,098		)	—				(6,098		)
Balance at March 31, 2017	50,738,221		$	531,275		$	7,498			$	(5,637	)		$	145,466		$	(12,619	)		$	665,983
Dividends paid ($0.24 per common share)																								—		—				—				—				(12,184		)		—				(12,184		)
Balance at June 30, 2017																								50,768,032		$	531,918			$	7,990			$	(5,580	)		$	155,580			$	(10,444	)		$	679,464

Balance at December 31, 2015	49,941,428		$	519,587		$	10,722			$	(5,922	)		$	112,013		$	(10,879	)		$	625,521		49,941,428		$	519,587			$	10,722			$	(5,922	)		$	112,013			$	(10,879	)		$	625,521
Comprehensive income	—		—			—				—				11,894			209				12,103			—		—				—				—				20,952				5,987				26,939
Stock-based compensation expense	—		—			500				—				—			—				500			—		—				1,023				—				—				—				1,023
ESOP shares released or committed to be released	—		—			9				57				—			—				66			—		—				26				114				—				—				140
Shares issued for stock options exercised and SARs	138,171		1,685			(609		)		—				—			—				1,076			296,525		3,752				(1,224		)		—				—				—				2,528
Shares issued for restricted stock grants	30,973		350			(350		)		—				—			—				—			39,328		460				(460		)		—				—				—				—
Cancellation of shares for tax withholding	(2,523	)	—			(29		)		—				—			—				(29		)	(6,700	)	—				(48		)		—				—				—				(48		)
Tax benefit from stock-based awards	—		—			37				—				—			—				37			—		—				106				—				—				—				106
Dividends paid ($0.12 per common share)	—		—			—				—				(5,996		)	—				(5,996		)
Balance at March 31, 2016	50,108,049		$	521,622		$	10,280			$	(5,865	)		$	117,911		$	(10,670	)		$	633,278
Dividends paid ($0.24 per common share)																								—		—				—				—				(12,016		)		—				(12,016		)
Balance at June 30, 2016																								50,270,581		$	523,799			$	10,145			$	(5,808	)		$	120,949			$	(4,892	)		$	644,193

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

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

	For the Three Months Ended March 31,						For the Six Months Ended June 30,
	2017			2016			2017			2016
	(In thousands)						(In thousands)
Cash flows from operating activities:
Net income	$	13,726		$	11,894		$	29,926		$	20,952
Adjustments to reconcile net income to net cash used in operating activities:
Amortization of premiums and discounts on investments, net	994			1,284			2,053			2,756
Amortization (accretion) of intangible assets and purchase accounting marks, net	409			(1,462		)	654			(1,015		)
Amortization of subordinated debt issuance costs	32			32			63			63
Stock-based compensation expense	697			500			1,486			1,023
ESOP expense	101			66			197			140
Loss on extinguishment of debt	—			1,454			—			1,454
Tax benefit from stock-based awards	—			37			—			(106		)
Provision for loan losses	2,288			2,688			4,580			6,312
Gain on sales of securities, net	(457		)	(1,452		)	(552		)	(1,819		)
Loans originated for sale	(76,340		)	(87,182		)	(208,158		)	(203,547		)
Principal balance of loans sold	51,826			89,758			113,188			183,125
(Increase) decrease in mortgage servicing asset	(180		)	803			(68		)	485
Gain on sales of other real estate owned	(27		)	(8		)	(107		)	(134		)
Net gain in mortgage banking fair value adjustments	(626		)	(441		)	(3,139		)	(756		)
Loss (gain) on disposal of equipment	20			(17		)
Gain on disposal of equipment							(42		)	(16		)
Write-downs of other real estate owned	32			—			231			4
Depreciation and amortization	1,391			1,351			2,792			2,705
Net loss on limited partnership investments	80			936			718			2,440
Deferred income tax expense	1,390			755
Deferred income tax expense (benefit)							10,177			(1,654		)
Increase in cash surrender value of bank-owned life insurance	(1,199		)	(818		)	(2,348		)	(1,632		)
Income recognized from death benefit on BOLI	(8		)	—			(8		)	—
Net change in:
Deferred loan fees and premiums	(1,637		)	(594		)	(3,777		)	(2,385		)
Accrued interest receivable	(355		)	(1,182		)	(980		)	(895		)
Other assets	(6,425		)	(41,510		)	(23,086		)	(47,356		)
Accrued expenses and other liabilities	(58		)	15,893			144			26,345
Net cash used in operating activities	(14,326		)	(7,215		)	(76,056		)	(13,511		)
Cash flows from investing activities:
Proceeds from sales of available-for-sale securities	130,630			108,152			184,484			201,636
Proceeds from calls and maturities of available-for-sale securities	31,489			—			64,840			7,328
Principal payments on available-for-sale securities	16,927			15,302			35,325			38,946
Principal payments on held-to-maturity securities	92			124			228			261
Purchases of available-for-sale securities	(209,197		)	(145,435		)	(308,423		)	(241,196		)
Redemption of FHLBB and other stock	2,512			—
Redemption of FHLBB and other restricted stock							2,512			—
Purchase of FHLBB stock	(126		)	(4,793		)	(2,179		)	(4,793		)
Proceeds from sale of other real estate owned	340			509			761			1,236
Purchases of loans	(16,955		)	(25,454		)	(72,035		)	(64,727		)
Loan originations, net of principal repayments	(27,290		)	(10,437		)	(81,360		)	(54,536		)
Purchases of premises and equipment	(1,190		)	(263		)	(6,208		)	(963		)
Proceeds from sale of equipment	224			1			707			1
Net cash used in investing activities	(72,544		)	(62,294		)	(181,348		)	(116,807		)

(Continued)

See accompanying notes to unaudited consolidated financial statements.

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United Financial Bancorp, Inc. and Subsidiaries Consolidated Statements of Cash Flows - Concluded (Unaudited)	United Financial Bancorp, Inc. and Subsidiaries Consolidated Statements of Cash Flows - Concluded (Unaudited)						United Financial Bancorp, Inc. and Subsidiaries Consolidated Statements of Cash Flows - Concluded (Unaudited)

	For the Three Months Ended March 31,						For the Six Months Ended June 30,
	2017			2016			2017			2016
	(In thousands)						(In thousands)
Cash flows from financing activities:
Net (decrease) increase in non-interest-bearing deposits	(17,534		)	21,136
Net increase in non-interest-bearing deposits							13,867			15,906
Net increase in interest-bearing deposits	96,916			76,197			268,829			3,081
Net decrease in mortgagors’ and investors’ escrow accounts	(2,429		)	(3,830		)
Net increase in mortgagors’ and investors’ escrow accounts							1,691			514
Net decrease in short-term FHLBB advances	(62,000		)	(45,000		)	(105,000		)	85,000
Repayments of long-term FHLBB advances	(378		)	(1,024		)	(757		)	(1,934		)
Repayments of called FHLBB advances							(45,000		)	—
Prepayments of long-term FHLBB borrowings and penalty	—			(37,796		)	—			(37,796		)
Proceeds from long-term FHLBB advances	25,000			60,000			95,000			105,000
Net change in other borrowings	48,152			(3,204		)	25,601			(27,758		)
Proceeds from exercise of stock options and SARs	376			1,076
Proceeds from exercise of stock options							773			2,528
Common stock repurchased	(1,312		)	—			(1,312		)	—
Cancellation of shares for tax withholding	(107		)	(29		)	(197		)	(48		)
Tax benefit from stock-based awards	—			37			—			106
Cash dividend paid on common stock	(6,098		)	(5,996		)	(12,184		)	(12,016		)
Net cash provided by financing activities	80,586			61,567			241,311			132,583
Net decrease in cash and cash equivalents	(6,284		)	(7,942		)
Net (decrease) increase in cash and cash equivalents							(16,093		)	2,265
Cash and cash equivalents, beginning of period	90,944			95,176			90,944			95,176
Cash and cash equivalents, end of period	$	84,660		$	87,234		$	74,851		$	97,441

Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest	$	10,385		$	9,809		$	23,802		$	21,681
Income taxes, net	2,740			1,445			3,003			2,300
Transfer of loans to other real estate owned	241			405			765			1,074
Decrease in due to broker, investment purchases	(6		)	—			(6		)	—

See accompanying notes to unaudited consolidated financial statements.

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United Financial Bancorp, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements



Note 1.	Summary of Significant Accounting Policies

Nature of Operations

United Financial Bancorp, Inc. (the “Company” or “United”) is headquartered in Glastonbury, Connecticut, and through United Bank (the “Bank”) and various subsidiaries, delivers financial services to individuals, families and businesses primarily throughout Connecticut and Massachusetts through 53 banking offices, its commercial loan production offices, its mortgage loan production offices, 6365 ATMs, telephone banking, mobile banking and online banking (www.bankatunited.com).

Basis of Presentation

The consolidated interim financial statements and the accompanying notes presented in this report include the accounts of the Company, the Bank and the Bank’s wholly-owned subsidiaries, United Bank Mortgage Company, United Bank Investment Corp., Inc., United Bank Commercial Properties, Inc., United Bank Residential Properties, Inc., United Northeast Financial Advisors, Inc., United Bank Investment Sub, Inc., UCB Securities, Inc. II, UB Properties, LLC, United Financial Realty HC, Inc. and United Financial Business Trust I.

The consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the rules of the Securities and Exchange Commission (“SEC”) for quarterly reports on Form 10-Q. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included in the interim unaudited consolidated financial statements. Interim results are not necessarily indicative of the results that may be expected for the year ending December 31, 2017 or any future period. These unaudited interim consolidated financial statements should be read in conjunction with the Company’s 2016 audited consolidated financial statements and notes thereto included in United Financial Bancorp, Inc.’s Annual Report on Form 10-K as of and for the year ended December 31, 2016.

Common Share Repurchases

The Company is chartered in the state of Connecticut. Connecticut law does not provide for treasury shares, rather shares repurchased by the Company constitute authorized, but unissued shares. GAAP states that accounting for treasury stock shall conform to state law. Therefore, the cost of shares repurchased by the Company has been allocated to common stock balances.

Reclassifications

Certain reclassifications have been made in prior periods’ consolidated financial statements to conform to the 2017 presentation. These reclassifications had no impact on the Company’s consolidated financial position, results of operations or net change in cash equivalents.

Use of Estimates

The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Actual results in the future could vary from the amounts derived from management’s estimates and assumptions. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the realizability of deferred tax assets, the evaluation of securities for other-than-temporary impairment, the valuation of derivative instruments and hedging activities, and goodwill impairment valuations.



Note 2.	Recent Accounting Pronouncements

~~Receivables~~Accounting Standards Issued but Not Yet Adopted

The following list identifies Account Standards Updates (“ASUs”) applicable to the Company that have been issued but are not yet effective:

Compensation

In ~~March~~May 2017, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2017-09 Compensation, Stock Compensation (Topic 718): Scope of Modified Accounting. This update amends the scope of modification accounting for share-based payment arrangements and provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under Accounting Standards ~~Update~~Codification (“~~ASU”~~ASC”) 718. Specifically, an entity would not apply modification accounting if the fair value, vesting conditions and classification of the awards

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are the same immediately before and after the modification. This ASU is effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted for entities whose financial statements have not yet been issued or made available for issuance. This ASU is not expected to have an impact on the Company’s Consolidated Financial Statements.

In March 2017, the FASB issued ASU No. 2017-07 Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. Under the new guidance, employers will present the service cost component of the net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. Employers are required to include all other components of net benefit cost in a separate line item from the service cost. Employers will have to disclose the line used to present the other components of net periodic benefit cost, if the components are not presented separately in the income statement. ASU 2017-07 is effective for public companies for fiscal years beginning after December 15, 2017. Early adoption is permitted in the first financial statements issued for a fiscal year, provided all provisions of the ASU are adopted. This ASU is not expected to have a significant impact on the Company’s Consolidated Financial Statements.

Receivables

In March 2017, the FASB issued ASU No. 2017-08 Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. Under the new guidance, the premium on bonds purchased at a premium will be amortized to the bond’s call date rather than the date of maturity to more closely align interest income recorded on bonds held at a premium or a discount with the economics of the underlying instrument. This ASU is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. ~~This~~As of June 30, 2017, this ASU is expected to have an impact of reducing approximately ~~$6.4~~$6.9 million of premiums to the Company’s Consolidated Financial Statements, with anthe offset being a reduction in retained earnings upon initial adoption.

Intangibles

In January 2017, the FASB issued ASU No. 2017-04 Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The guidance removes Step 2 of the Goodwill Impairment Test, which requires hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The new guidance will simplify financial reporting since it eliminates that need to determine the fair value of individual assets and liabilities of a reporting unit to measure the goodwill impairment. Currently, failing Step 1 of the goodwill impairment test did not necessarily result in impairment. However, under the new guidance, failing Step 1 will always result in impairment. This ASU will be applied prospectively, and is effective for public business entities that are U.S. Securities and Exchange Commission filers for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for any impairment test performed after January 1, 2017. This ASU is not expected to have an impact on the Company’s Consolidated Financial Statements.

Income Taxes

In October 2016, the FASB issued ASU No. 2016-16 Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory as a part of the Board’s simplification initiative. Currently, the tax effects of intra-entity asset transfers (intercompany sales) are deferred until the transferred asset is sold to third party or otherwise recovered through use. Under the new ASU, the selling (transferring) entity is required to recognize a current tax expense or benefit upon transfer of the asset. Similarly, the purchasing (receiving) entity is required to recognize a deferred tax asset (DTA) or deferred tax liability (DTL), as well as the related deferred tax benefit or expense, upon receipt of the asset. The new guidance does not apply to intra-entity transfers of inventory. The new guidance will be effective for public business entities in fiscal years beginning after December 15, 2017, including interim periods within those years (i.e., in the first quarter of 2018 for calendar year-end companies). Early adoption is permitted. The modified retrospective approach will be required for transition to the new guidance, with a cumulative-effect adjustment recorded in retained earnings as of the beginning of the period of adoption. The cumulative-effect adjustment would consist of the net impact from (1) the write-off of any unamortized tax expense previously deferred and (2) recognition of any previously unrecognized deferred tax assets, net of any necessary valuation allowance. This ASU is expected to have an impact on the Company’s deferred tax recognition due to transfers between separate companies in the consolidated group however it is not expected to have a material financial statement impact on the Company’s Consolidated Financial Statements.

Statement of Cash Flows

In August 2016, the FASB issued ASU No. 2016-15 Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments as part of the consensus of the Emerging Issues Task Force. The new guidance is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. This ASU clarifies whether the following items should be categorized as operating, investing or financing on the statement of cash flows; 1) debt prepayments and extinguishment costs, 2) settlement of zero-coupon debt, 3) settlement of contingent consideration. 4) insurance proceeds, 5)

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~~Compensation~~

~~In March 2017, the FASB issued~~settlement of corporate-owned like insurance (COLI) and bank-owned life insurance (BOLI) policies, 6) distributions from equity method investees, 7) beneficial interests in securitization transactions, and 8) receipts and payments with aspects of more than one class of cash flows. ASU ~~No. 2017-07~~ ~~Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.~~ Under the new guidance, employers will present the service cost component of the net periodic benefit cost in the same income statement line item(s) as other employee compensation costs arising from services rendered during the period. In addition, only the service cost component will be eligible for capitalization in assets. Employers are required to include all other components of net benefit cost in a separate line item(s) that includes the service cost and outside of any subtotal of non-GAAP income, if one is presented. Employers will have to disclose the line(s) used to present the other components of net periodic benefit cost, if the components are not presented separately in the income statement. ASU 2017-072016-15 is effective for public ~~companies~~business entities for fiscal years beginning after December 15, ~~2017.~~2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustment should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the ~~first financial statements issued for a fiscal year, provided all provisions of the ASU are adopted.~~same period. This ASU is ~~not~~ expected to have an impact on the disclosures in the Company’s Consolidated Statement of Cash Flows.

Financial Instruments

In June 2016, the FASB issued ASU No. 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments which amends the Board’s guidance on the impairment of financial instruments. The ASU adds to US GAAP an impairment model (known as the current expected credit loss (CECL) model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses, which the FASB believes will result in more timely recognition of such losses. The ASU is also intended to reduce the complexity of US GAAP by decreasing the number of credit impairment models that entities use to account for debt instruments. For public business entities that are US Securities and Exchange Commission filers, this ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The amendments in this Update may be adopted earlier as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is evaluating the provisions of ASU 2016-13 and will closely monitor developments and additional guidance to determine the potential impact on the Company’s Consolidated Financial Statements. The Company expects the change in loss methodologies from an incurred loss model to an expected loss model to result in changes to the Consolidated Financial Statements. The expected credit loss model will require a financial asset to be presented at the net amount expected to be collected. The Company is in the process of identifying and implementing required changes to loan loss estimation models and processes and evaluating the impact of this new accounting guidance, which at the date of adoption will impact retained earnings through a one-time adjustment.

Leases

In February 2016, the FASB issued ASU No. 2016-02 Leases (Topic 842). This ASU consists of three sections: Section A- Leases: Amendments to the FASB Accounting Standards Codification; Section B - Conforming Amendments Related to Leases: Amendments to the FASB Accounting Standards Codification; and Section C - Background Information and Basis for Conclusions. This ASU introduces a lessee model that brings most leases on the balance sheet and aligns many of the underlying principles of the new lessor model with those in the new revenue recognition standard, ASC 606, Revenue From Contracts with Customers. The new leases standard represents a whole-sale change to lease accounting and will most likely result in significant implementation challenges during the transition period and beyond. Classification will be based on criteria that are largely similar to those applied in current lease accounting, but without explicit bright lines. The new guidance will be effective for public business entities for annual periods beginning after December 15, 2018 (i.e. calendar periods beginning on January 1, 2019), and interim periods therein. Early adoption will be permitted for all entities. It is required that to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that entities may elect to apply. As of June 30, 2017, the future minimum lease commitments totaled $43.1 million. The Company does not expect the present value of the future lease payments to have a material impact on the Company’s Consolidated Financial Statements.

Revenue Recognition

In May 2014, the FASB issued ASU No. 2014-09 Revenue From Contracts with Customers (Topic 606). This ASU consists of three sections: Section A-Summary and Amendments That Create Revenue from Contracts with Customers (Topic 606) and Other Assets and Deferred Costs-Contracts with Customers (Subtopic 340-40); Section B-Conforming Amendments to Other Topics and Subtopics in the Codification and Status Tables; and Section C-Background Information and Basis for Conclusions. This ASU provides a revenue recognition framework for entities that either enter into a contract with customers to transfer goods or services or enter into a contract for the transfer of non-financial assets (unless the contracts are outside the scope of the standard). The standard permits the use of either the retrospective or cumulative effect transition method. Many amendments were made to help clarify the intention and scope of this ASU. This ASU is currently effective for periods after December 15, 2017, and interim and annual reporting periods thereafter. Since many of the Company’s revenue streams are scoped out of this revenue standard, the Company does not expect a material impact on its Consolidated Financial Statements. This ASU will continue to be evaluated as more issues relevant to the Banking Industry are addressed.

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Note 3.	Securities

The amortized cost, gross unrealized gains, gross unrealized losses and fair value of investment securities at ~~March 31,~~June 30, 2017 and December 31, 2016 are as follows:


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)									(In thousands)
March 31, 2017
June 30, 2017
Available for sale:
Debt securities:
Government-sponsored residential mortgage-backed securities	$	225,266	$	309	$	(1,841	)	$	223,734	$	223,169	$	773	$	(1,080	)	$	222,862
Government-sponsored residential collateralized debt obligations	204,406		912		(1,040		)	204,278		188,610		808		(515		)	188,903
Government-sponsored commercial mortgage-backed securities	22,489		15		(280		)	22,224		25,663		37		(132		)	25,568
Government-sponsored commercial collateralized debt obligations	142,786		179		(2,404		)	140,561		155,798		239		(2,420		)	153,617
Asset-backed securities	154,215		2,221		(251		)	156,185		149,883		1,984		(271		)	151,596
Corporate debt securities	87,969		514		(1,915		)	86,568		85,198		988		(1,620		)	84,566
Obligations of states and political subdivisions	238,251		282		(6,959		)	231,574		239,735		1,084		(5,593		)	235,226
Total debt securities	1,075,382		4,432		(14,690		)	1,065,124		1,068,056		5,913		(11,631		)	1,062,338
Marketable equity securities, by sector:
Banks	9,428		807		—			10,235		9,422		1,260		—			10,682
Industrial	109		71		—			180		109		70		—			179
Oil and gas	132		58		—			190		132		53		—			185
Total marketable equity securities	9,669		936		—			10,605		9,663		1,383		—			11,046
Total available-for-sale securities	$	1,085,051	$	5,368	$	(14,690	)	$	1,075,729	$	1,077,719	$	7,296	$	(11,631	)	$	1,073,384
Held to maturity:
Debt securities:
Obligations of states and political subdivisions	$	12,311	$	775	$	(34	)	$	13,052	$	12,301	$	867	$	(45	)	$	13,123
Government-sponsored residential mortgage-backed securities	1,626		161		—			1,787		1,491		139		—			1,630
Total held-to-maturity securities	$	13,937	$	936	$	(34	)	$	14,839	$	13,792	$	1,006	$	(45	)	$	14,753

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	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
December 31, 2016
Available for sale:
Debt securities:
Government-sponsored residential mortgage-backed securities	$	181,419	$	365	$	(2,236	)	$	179,548
Government-sponsored residential collateralized debt obligations	184,185		438		(1,363		)	183,260
Government-sponsored commercial mortgage-backed securities	26,949		23		(442		)	26,530
Government-sponsored commercial collateralized debt obligations	164,433		296		(1,802		)	162,927
Asset-backed securities	166,336		1,619		(988		)	166,967
Corporate debt securities	76,787		533		(2,305		)	75,015
Obligations of states and political subdivisions	223,733		127		(7,484		)	216,376
Total debt securities	1,023,842		3,401		(16,620		)	1,010,623
Marketable equity securities, by sector:
Banks	32,174		482		(243		)	32,413
Industrial	109		58		—			167
Oil and gas	131		77		—			208
Total marketable equity securities	32,414		617		(243		)	32,788
Total available-for-sale securities	$	1,056,256	$	4,018	$	(16,863	)	$	1,043,411
Held to maturity:
Debt securities:
Obligations of states and political subdivisions	$	12,321	$	654	$	(35	)	$	12,940
Government-sponsored residential mortgage-backed securities	1,717		172		—			1,889
Total held-to-maturity securities	$	14,038	$	826	$	(35	)	$	14,829

At ~~March 31,~~June 30, 2017, the net unrealized loss on securities available for sale of ~~$9.3~~$4.3 million, net of an income tax ~~expense~~benefit of ~~$3.3~~$1.5 million, or ~~$6.0~~$2.8 million, was included in accumulated other comprehensive loss in the unaudited Consolidated Statement of Condition.

The amortized cost and fair value of debt securities at ~~March 31,~~June 30, 2017 by contractual maturities are presented below. Actual maturities may differ from contractual maturities because some securities may be called or repaid without any penalties. Also, because mortgage-backed securities require periodic principal paydowns, they are not included in the maturity categories in the following maturity summary.

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	Available for Sale				Held to Maturity				Available for Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)								(In thousands)
Maturity:
Within 1 year	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
After 1 year through 5 years	16,689		16,784		1,178		1,199		8,924		9,098		1,175		1,195
After 5 years through 10 years	81,882		81,217		1,102		1,068		82,258		82,376		1,100		1,055
After 10 years	227,649		220,141		10,031		10,785		233,751		228,318		10,026		10,873
	326,220		318,142		12,311		13,052		324,933		319,792		12,301		13,123
Government-sponsored residential mortgage-backed securities	225,266		223,734		1,626		1,787		223,169		222,862		1,491		1,630
Government-sponsored residential collateralized debt obligations	204,406		204,278		—		—		188,610		188,903		—		—
Government-sponsored commercial mortgage-backed securities	22,489		22,224		—		—		25,663		25,568		—		—
Government-sponsored commercial collateralized debt obligations	142,786		140,561		—		—		155,798		153,617		—		—
Asset-backed securities	154,215		156,185		—		—		149,883		151,596		—		—
Total debt securities	$	1,075,382	$	1,065,124	$	13,937	$	14,839	$	1,068,056	$	1,062,338	$	13,792	$	14,753

At ~~March 31,~~June 30, 2017, the Company had ~~109~~ securities with a fair value of ~~$496.8~~$515.6 million pledged as derivative collateral, collateral for reverse repurchase borrowings, collateral for municipal deposit exposure, and collateral for Federal Home Loan Bank of Boston (“FHLBB”) borrowing capacity. At December 31, 2016, the Company had ~~115~~ securities with a fair value of $510.0 million pledged as derivative collateral, collateral for reverse repurchase borrowings, collateral for municipal deposit exposure, and collateral for FHLBB borrowing capacity.

For the three months ended ~~March 31,~~June 30, 2017 and 2016, gross gains of ~~$1.7~~$521,000 and $630,000 were realized on the sales of available-for-sale securities, respectively. There were gross losses of $426,000 and $263,000 realized on the sales of available-for-sale securities for the three months ended June 30, 2017 and 2016, respectively. For both the six months ended June 30, 2017 and 2016, gross gains of $2.3 million were realized on the sales of available-for-sale ~~securities for both periods.~~securities. There were gross losses of ~~$1.3~~$1.7 million and ~~$202,000~~$466,000 realized on the sale of available-for-sale securities for the ~~three~~six months ended ~~March 31,~~June 30, 2017 and 2016, respectively.

As of ~~March 31,~~June 30, 2017, the Company did not have any exposure to private-label mortgage-backed securities. The Company also did not own any single security with an aggregate book value in excess of 10% of the Company’s stockholders’ equity.

As of ~~March 31,~~June 30, 2017, the fair value of the obligations of states and political subdivisions portfolio was ~~$244.6~~$248.3 million, with no significant geographic or issuer exposure concentrations. Of the total state and political obligations of ~~$244.6~~$248.3 million, ~~$106.0~~$107.8 million were representative of general obligation bonds for which ~~$72.5~~$64.8 million are general obligations of political subdivisions of the respective state, rather than general obligations of the state itself.

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The following table summarizes gross unrealized losses and fair value, aggregated by category and length of time the securities have been in a continuous unrealized loss position, as of ~~March 31,~~June 30, 2017 and December 31, 2016:


	Less Than 12 Months					12 Months or More					Total					Less Than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
	(In thousands)															(In thousands)
March 31, 2017
June 30, 2017
Available for sale:
Debt Securities:
Debt securities:
Government-sponsored residential mortgage-backed securities	$	155,665	$	(1,841	)	$	—	$	—		$	155,665	$	(1,841	)	$	138,389	$	(1,080	)	$	—	$	—		$	138,389	$	(1,080	)
Government-sponsored residential collateralized debt obligations	83,542		(730		)	6,664		(310		)	90,206		(1,040		)	71,192		(489		)	3,137		(26		)	74,329		(515		)
Government-sponsored commercial mortgage-backed securities	18,250		(280		)	—		—			18,250		(280		)	18,818		(132		)	—		—			18,818		(132		)
Government-sponsored commercial collateralized debt obligations	119,514		(2,404		)	—		—			119,514		(2,404		)	119,622		(2,247		)	6,802		(173		)	126,424		(2,420		)
Asset-backed securities	17,022		(123		)	2,290		(128		)	19,312		(251		)	33,231		(174		)	2,326		(97		)	35,557		(271		)
Corporate debt securities	44,204		(791		)	1,605		(1,124		)	45,809		(1,915		)	31,343		(483		)	1,584		(1,137		)	32,927		(1,620		)
Obligations of states and political subdivisions	146,298		(5,177		)	41,160		(1,782		)	187,458		(6,959		)	104,850		(3,233		)	46,607		(2,360		)	151,457		(5,593		)
Total available-for-sale securities	$	584,495	$	(11,346	)	$	51,719	$	(3,344	)	$	636,214	$	(14,690	)	$	517,445	$	(7,838	)	$	60,456	$	(3,793	)	$	577,901	$	(11,631	)

Held to Maturity:
Debt Securities:
Debt securities:
Obligations of states and political subdivisions	$	—	$	—		$	1,068	$	(34	)	$	1,068	$	(34	)	$	—	$	—		$	1,055	$	(45	)	$	1,055	$	(45	)
Total held to maturity securities	$	—	$	—		$	1,068	$	(34	)	$	1,068	$	(34	)	$	—	$	—		$	1,055	$	(45	)	$	1,055	$	(45	)

December 31, 2016
Available for sale:
Debt Securities:
Debt securities:
Government-sponsored residential mortgage-backed securities	$	156,000	$	(2,236	)	$	—	$	—		$	156,000	$	(2,236	)	$	156,000	$	(2,236	)	$	—	$	—		$	156,000	$	(2,236	)
Government-sponsored residential collateralized debt obligations	109,468		(1,082		)	6,691		(281		)	116,159		(1,363		)	109,468		(1,082		)	6,691		(281		)	116,159		(1,363		)
Government-sponsored commercial mortgage-backed securities	23,808		(442		)	—		—			23,808		(442		)	23,808		(442		)	—		—			23,808		(442		)
Government-sponsored commercial collateralized debt obligations	128,238		(1,802		)	—		—			128,238		(1,802		)	128,238		(1,802		)	—		—			128,238		(1,802		)
Asset-backed securities	23,415		(163		)	20,326		(825		)	43,741		(988		)	23,415		(163		)	20,326		(825		)	43,741		(988		)
Corporate debt securities	43,990		(885		)	3,335		(1,420		)	47,325		(2,305		)	43,990		(885		)	3,335		(1,420		)	47,325		(2,305		)
Obligations of states and political subdivisions	156,891		(5,620		)	41,136		(1,864		)	198,027		(7,484		)	156,891		(5,620		)	41,136		(1,864		)	198,027		(7,484		)
Total debt securities	641,810		(12,230		)	71,488		(4,390		)	713,298		(16,620		)	641,810		(12,230		)	71,488		(4,390		)	713,298		(16,620		)
Marketable equity securities	19,002		(243		)	—		—			19,002		(243		)	19,002		(243		)	—		—			19,002		(243		)
Total available-for-sale securities	$	660,812	$	(12,473	)	$	71,488	$	(4,390	)	$	732,300	$	(16,863	)	$	660,812	$	(12,473	)	$	71,488	$	(4,390	)	$	732,300	$	(16,863	)

Held to Maturity:
Debt Securities:
Debt securities:
Obligations of states and political subdivisions	$	—	$	—		$	1,070	$	(35	)	$	1,070	$	(35	)	$	—	$	—		$	1,070	$	(35	)	$	1,070	$	(35	)
Total held to maturity securities	$	—	$	—		$	1,070	$	(35	)	$	1,070	$	(35	)	$	—	$	—		$	1,070	$	(35	)	$	1,070	$	(35	)

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Of the available-for-sale securities summarized above as of ~~March 31,~~June 30, 2017, ~~150~~129 issues had unrealized losses equaling ~~1.9%~~1.5% of the amortized cost basis for less than twelve months and 2326 issues had unrealized losses of ~~6.1%~~5.9% of the amortized cost basis for twelve months or more. There was one unrealized loss of ~~$34,000~~$45,000 on a debt security held to maturity at ~~March 31,~~June 30, 2017. As of December 31, 2016, 170 issues had unrealized losses equaling 1.9% of the cost basis for less than twelve months and 31 issues had unrealized losses equaling 5.8% of the amortized cost basis for twelve months or more.

Based on its detailed quarterly review of the securities portfolio, management believes that no individual unrealized loss as of ~~March 31,~~June 30, 2017 represents an other-than-temporary impairment. Among other things, the other-than-temporary impairment review of the investment securities portfolio focuses on the combined factors of percentage and length of time by which an issue is below book value as well as consideration of issuer specific information (present value of cash flows expected to be collected, issuer rating changes and trends, credit worthiness and review of underlying collateral), broad market details and the Company’s intent to sell the security or if it is more likely than not that the Company will be required to sell the debt security before recovering its cost. The Company also considers whether the depreciation is due to interest rates, market changes, or credit risk.

The following paragraphs outline the Company’s position related to unrealized losses in its investment securities portfolio at ~~March 31,~~June 30, 2017.

Government-sponsored residential mortgage backed securities, residential collateralized debt obligations, commercial mortgage-backed securities, and commercial collateralized debt obligations. The unrealized losses on certain securities within the Company’s government-sponsored mortgage-backed and collateralized debt obligation portfolios were caused by the continued ~~pickup of~~increase in prepayment speeds relative to ~~original purchase expectations.~~the prepayment expectations at the time of purchase. The Company monitors this risk, and therefore, strives to minimize premiums within this security class. The Company does not expect these securities to settle at a price less than the par value of the securities.

Asset-backed securities. The unrealized losses on certain securities within the Company’s asset-backed securities ~~sleeve~~portfolio were largely driven by slight increases in the spreads of certain managers over comparable securities’ managers relative to the time of purchase. Based on the credit profiles and asset qualities of the individual securities, management does not believe that the securities have suffered from any credit related losses at this time. The Company does not expect these securities to settle at a price less than the par value of the securities.

Corporate debt securities. The unrealized losses on corporate debt securities is primarily related to one pooled trust preferred security, Preferred Term Security XXVIII, Ltd (“PRETSL XXVIII”). The unrealized loss on this security is caused by the low interest rate ~~environment, as~~environment; the security reprices quarterly toat the ~~three month~~3-month LIBOR rate and the security’s spread is low, ~~spread~~ as compared to market spreads on similar newly issued securities that have increased. No loss of principal is projected. Based on the existing credit profile, management does not believe that this security has suffered from any credit related losses. The unrealized loss on the remainder of the corporate credit portfolio has been driven primarily by ~~a general widening~~an upward shift in ~~credit spreads across~~rates relative to the ~~curve.~~time of purchase.

Obligations of states and political subdivisions. The unrealized loss on obligations of states and political subdivisions relates to ~~several~~69 securities, with no geographic concentration. The unrealized loss was largely due to an upward shift in the rates relative to the time of purchase of certain securities.

The Company will continue to review its entire portfolio for other-than-temporarily impaired securities.

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Note 4.	Loans Receivable and Allowance for Loan Losses

A summary of the Company’s loan portfolio is as follows:


	March 31, 2017					December 31, 2016					June 30, 2017					December 31, 2016
	Amount			Percent		Amount			Percent		Amount			Percent		Amount			Percent
	(Dollars in thousands)										(Dollars in thousands)
Commercial real estate loans:
Owner-occupied	$	433,358		8.8	%	$	416,718		8.5	%	$	429,848		8.5	%	$	416,718		8.5	%
Investor non-owner occupied	1,697,414			34.3		1,705,319			34.8		1,761,940			34.9		1,705,319			34.8
Construction	85,533			1.7		98,794			2.0		74,980			1.5		98,794			2.0
Total commercial real estate loans	2,216,305			44.8		2,220,831			45.3		2,266,768			44.9		2,220,831			45.3

Commercial business loans	769,153			15.6		724,557			14.8		792,918			15.7		724,557			14.8

Consumer loans:
Residential real estate	1,167,428			23.6		1,156,227			23.6		1,172,540			23.2		1,156,227			23.6
Home equity	516,325			10.4		536,772			11.0		538,130			10.6		536,772			11.0
Residential construction	49,456			1.0		53,934			1.1		46,117			0.9		53,934			1.1
Other consumer	225,317			4.6		209,393			4.2		237,708			4.7		209,393			4.2
Total consumer loans	1,958,526			39.6		1,956,326			39.9		1,994,495			39.4		1,956,326			39.9

Total loans	4,943,984			100.0	%	4,901,714			100.0	%	5,054,181			100.0	%	4,901,714			100.0	%
Net deferred loan costs and premiums	13,273					11,636					15,413					11,636
Allowance for loan losses	(43,304		)			(42,798		)			(45,062		)			(42,798		)
Loans - net	$	4,913,953				$	4,870,552				$	5,024,532				$	4,870,552

Allowance for Loan Losses

Management has established a methodology to determine the adequacy of the allowance for loan losses (“ALL”) that assesses the risks and losses inherent in the loan portfolio. The ALL is established as embedded losses are estimated to have occurred through the provisions for losses charged against operations and is maintained at a level that management considers adequate to absorb losses in the loan portfolio. Management’s judgment in determining the adequacy of the allowance is inherently subjective and is based on past loan loss experience, known and inherent losses and size of the loan portfolios, an assessment of current economic and real estate market conditions, estimates of the current value of underlying collateral, review of regulatory authority examination reports and other relevant factors. An allowance is maintained for impaired loans to reflect the difference, if any, between the carrying value of the loan and the present value of the projected cash flows, observable fair value or collateral value. Loans are charged-off against the ALL when management believes that the uncollectibility of principal is confirmed. Any subsequent recoveries are credited to the ALL when received. In connection with the determination of the ALL, management obtains independent appraisals for significant properties, when considered necessary.

The ALL is maintained at a level estimated by management to provide for probable losses inherent within the loan portfolio. Probable losses are estimated based upon a quarterly review of the loan portfolio, which includes historic default and loss experience, specific problem loans, risk rating profile, economic conditions and other pertinent factors which, in management’s judgment, warrant current recognition in the loss estimation process.

The adequacy of the ALL is subject to considerable assumptions and judgment used in its determination. Therefore, actual losses could differ materially from management’s estimate if actual conditions differ significantly from the assumptions utilized. These conditions include economic factors in the Company’s market and nationally, industry trends and concentrations, real estate values and trends, and the financial condition and performance of individual borrowers.

The Company’s general practice is to identify problem credits early and recognize full or partial charge-offs as promptly as practicable when it is determined that the collection of loan principal is unlikely. The Company recognizes full or partial charge-offs on collateral dependent impaired loans when the collateral is deemed to be insufficient to support the carrying value of the loan. The Company does not recognize a recovery when an updated appraisal indicates a subsequent increase in value.

~~Table of Contents~~

At ~~March 31,~~June 30, 2017, the Company had a loan loss allowance of ~~$43.3~~$45.1 million, or ~~0.88%~~0.89%, of total loans as compared to a loan loss allowance of $42.8 million, or 0.87%, of total loans at December 31, 2016. Management believes that the allowance for loan

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losses is adequate and consistent with asset quality indicators and that it represents the best estimate of probable losses inherent in the loan portfolio.

There are three components for the allowance for loan loss calculation:

General component

The general component of the allowance for loan losses is based on historical loss experience adjusted for qualitative factors stratified by the following loan segments: owner-occupied and investor non-owner occupied commercial real estate, commercial and residential construction, commercial business, residential real estate, home equity, and other consumer. Management uses a rolling average of historical losses based on a three-year loss history to capture relevant loss data for each loan segment. This historical loss factor is adjusted for the following qualitative factors: levels and trends in delinquencies; level and trend of charge-offs and recoveries; trends in volume and types of loans; effects of changes in risk selection and underwriting ~~standards, changes in risk selection and underwriting~~ standards; experience and depth of ~~lending~~lending; changes in weighted average risk ~~rating;~~ratings; and national and local economic trends and conditions. The general component of the allowance for loan losses also includes a reserve based upon historical loss experience for loans which were acquired and have subsequently evidenced measured credit deterioration following initial acquisition. Our acquired loan portfolio is comprised of purchased loans that show no evidence of deterioration subsequent to acquisition and therefore are not ~~part of~~covered by the ~~covered portfolio.~~allowance for loan losses. Acquired impaired loans are loans with evidence of deterioration subsequent to acquisition and are considered ~~in the covered portfolio~~ in establishing the allowance for loan losses. There were no changes in the Company’s methodology pertaining to the general component of the allowance for loan losses during 2017.

The qualitative factors are determined based on the various risk characteristics of each loan segment. Risk characteristics relevant to each portfolio segment are as follows:

Residential real estate and home equity loans – The Bank establishes maximum loan-to-value and debt-to-income ratios and minimum credit scores as an integral component of the underwriting criteria. Loans in these segments are collateralized by owner-occupied residential real estate and repayment is dependent on the income and credit quality of the individual borrower. Within the qualitative allowance factors, national and local economic trends including unemployment rates and potential declines in property value, are key elements reviewed as a component of establishing the appropriate allocation. Overall economic conditions, unemployment rates and housing price trends will influence the underlying credit quality of these segments.

Owner-occupied and investor non-owner occupied commercial real estate (“Owner-occupied CRE” and “Investor CRE”) – Loans in these segments are primarily income-producing properties throughout Connecticut, western Massachusetts, and other select markets in the Northeast. The underlying cash flows generated by the properties could be adversely impacted by a downturn in the economy as evidenced by increased vacancy rates, which in turn, will have an effect on the credit quality in this segment. Management obtains rent rolls annually, continually monitors the cash flows of these loans and performs stress testing.

Commercial and residential construction loans – Loans in this segment primarily include commercial real estate development and residential subdivision loans for which payment is derived from the sale of the property. Credit risk is affected by cost overruns, time to sell at an adequate price, and market conditions.

Commercial business loans – Loans in this segment are made to businesses and are generally secured by assets of the business. Repayment is expected from the cash flows of the business. A weakened economy and its effect on business profitability and cash flow could have an effect on the credit quality in this segment.

Other Consumer – Loans in this segment are secured or unsecured and repayment is dependent on the credit quality of the individual borrower. A significant portion of these loans are secured by boats.

For acquired loans accounted for under ASC 310-30, our accretable discount is estimated based upon our expected cash flows for these loans. To the extent that we experience a deterioration in borrower credit quality resulting in a decrease in our expected cash flows subsequent to the acquisition of the loans, an allowance for loan losses would be established through a provision based on our estimate of future credit losses over the remaining life of the loans.

Allocated component

The allocated component relates to loans that are classified as impaired. Impairment is measured on a loan by loan basis for commercial, commercial real estate and construction loans 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. An allowance is established when the discounted cash flows (or collateral value) of the impaired loan is lower than the carrying value of that loan. Updated

~~Table of Contents~~

property evaluations are obtained at the time of impairment and serve as the basis for the loss allocation if foreclosure is probable or the loan is collateral dependent.

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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. Loans which are placed on non-accrual status, or deemed troubled debt restructures, are considered impaired by the Company and subject to impairment testing for possible partial or full charge-off when loss can be reasonably determined. Generally, when all contractual payments on a loan are not expected to be collected, or the loan has failed to make contractual payments for a period of 90 days or more, a loan is placed on non-accrual status. In accordance with the Company's loan policy, losses on open and closed end consumer loans are recognized within a period of 120 days past due. For commercial loans, there is no threshold in terms of days past due for losses to be recognized as a result of the complexity in reasonably determining losses within a set time frame. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due.

When a loan is determined to be impaired, the Company makes a determination if the repayment of the obligation is collateral dependent. As a majority of impaired loans are collateralized by real estate, appraisals on the underlying value of the property securing the obligation are utilized in determining the specific impairment amount that is allocated to the loan as a component of the allowance calculation. If the loan is collateral dependent, an updated appraisal is obtained within a short period of time from the date the loan is determined to be impaired; typically no longer than 30 days for a residential property and 90 days for a commercial real estate property. The appraisal and the appraised value are reviewed for adequacy and then further discounted for estimated disposition costs and the period of time until resolution, in order to determine the impairment amount. The Company updates the appraised value at least annually and on a more frequent basis if current market factors indicate a potential change in valuation.

The majority of the Company’s loans are collateralized by real estate located in central and eastern Connecticut and western Massachusetts in addition to a portion of the commercial real estate loan portfolio located in the Northeast region of the United States. Accordingly, the collateral value of a substantial portion of the Company’s loan portfolio and real estate acquired through foreclosure is susceptible to changes in market conditions in these areas.

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.

Credit Quality Information

The Company utilizes a nine-grade internal loan rating system for residential and commercial real estate, construction, commercial and other consumer loans as follows:

Loans rated 1 – 5: Loans in these categories are considered “pass” rated loans with low to average risk.

Loans rated 6: Loans in this category are considered “special mention.” These loans reflect signs of potential weakness and are being closely monitored by management.

Loans rated 7: Loans in this category are considered “substandard.” Generally, a loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligor and there is a distinct possibility that the Company will sustain some loss if the weakness is not corrected.

Loans rated 8: Loans in this category are considered “doubtful.” Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable.

Loans rated 9: Loans in this category are considered uncollectible (“~~loss”~~loss��) and of such little value that their continuance as loans is not warranted.

At the time of loan origination, a risk rating based on this nine point grading system is assigned to each loan based on the loan officer’s assessment of risk. For residential real estate and other consumer loans, the Company considers factors such as updated FICO scores, employment status, home prices, loan to value and geography. Residential real estate and other consumer loans are pass rated unless their payment history reveals signs of deterioration, which may result in modifications to the original contractual terms. In situations which require modification to the loan terms, the internal loan grade will typically be reduced to substandard. More complex loans, such as commercial business loans and commercial real estate loans require that our internal credit area further evaluate the risk rating of the individual loan, with the credit area and Chief Credit Officer having final determination of

~~Table of Contents~~

the appropriate risk rating. These more complex loans and relationships receive an in-depth analysis and periodic review to assess the appropriate risk rating on a post-closing basis with changes made to the risk rating as the borrower’s and economic conditions warrant. The credit quality of the Company’s loan portfolio is reviewed by a third-party risk assessment firm throughout the year

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and by the Company’s internal credit management function. The internal and external analysis of the loan portfolio is utilized to identify and quantify loans with higher than normal risk. Loans having a higher risk profile are assigned a risk rating corresponding to the level of weakness identified in the loan. All loans risk rated Special Mention, Substandard or Doubtful are reviewed by management not less than on a quarterly basis to assess the level of risk and to ensure that appropriate actions are being taken to minimize potential loss exposure. Loans identified as being loss are normally fully charged off.

The following table presents the Company’s loans by risk rating at ~~March 31,~~June 30, 2017 and December 31, 2016:


	Owner-Occupied CRE		Investor CRE		Construction		Commercial Business		Residential Real Estate		Home Equity		Other Consumer		Owner-Occupied CRE		Investor CRE		Construction		Commercial Business		Residential Real Estate		Home Equity		Other Consumer
	(In thousands)														(In thousands)
March 31, 2017
June 30, 2017
Loans rated 1-5	$	405,924	$	1,641,631	$	133,454	$	743,978	$	1,149,885	$	510,547	$	223,991	$	405,894	$	1,723,572	$	119,345	$	769,539	$	1,156,057	$	531,565	$	236,790
Loans rated 6	4,930		22,728		—		5,260		1,062		—		—		2,800		10,004		1,465		3,117		942		—		—
Loans rated 7	22,504		33,055		1,535		19,915		16,481		5,778		1,326		21,154		28,364		287		20,262		15,541		6,565		918
Loans rated 8	—		—		—		—		—		—		—		—		—		—		—		—		—		—
Loans rated 9	—		—		—		—		—		—		—		—		—		—		—		—		—		—
	$	433,358	$	1,697,414	$	134,989	$	769,153	$	1,167,428	$	516,325	$	225,317	$	429,848	$	1,761,940	$	121,097	$	792,918	$	1,172,540	$	538,130	$	237,708

December 31, 2016
Loans rated 1-5	$	388,389	$	1,656,256	$	150,411	$	698,458	$	1,139,662	$	531,359	$	207,193	$	388,389	$	1,656,256	$	150,411	$	698,458	$	1,139,662	$	531,359	$	207,193
Loans rated 6	7,139		18,040		204		7,466		1,267		—		—		7,139		18,040		204		7,466		1,267		—		—
Loans rated 7	21,190		31,023		2,113		18,633		15,298		5,413		2,200		21,190		31,023		2,113		18,633		15,298		5,413		2,200
Loans rated 8	—		—		—		—		—		—		—		—		—		—		—		—		—		—
Loans rated 9	—		—		—		—		—		—		—		—		—		—		—		—		—		—
	$	416,718	$	1,705,319	$	152,728	$	724,557	$	1,156,227	$	536,772	$	209,393	$	416,718	$	1,705,319	$	152,728	$	724,557	$	1,156,227	$	536,772	$	209,393

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Activity in the allowance for loan losses for the periods ended ~~March 31,~~June 30, 2017 and 2016 were as follows:


	Owner-Occupied CRE			Investor CRE			Construction			Commercial Business			Residential Real Estate			Home Equity			Other Consumer			Unallocated			Total			Owner-Occupied CRE			Investor CRE			Construction			Commercial Business			Residential Real Estate			Home Equity			Other Consumer			Unallocated		Total
	(In thousands)																											(In thousands)
Three Months Ended March 31, 2017
Three Months Ended June 30, 2017																												Three Months Ended June 30, 2017
Balance, beginning of period	$	3,765		$	14,869		$	1,913		$	8,730		$	7,854		$	2,858		$	1,353		$	1,456		$	42,798		$	3,818		$	14,715		$	1,857		$	9,151		$	7,629		$	2,910		$	1,788		$	1,436	$	43,304
Provision (credit) for loan losses	53			79			76			1,041			(34		)	256			837			(20		)	2,288			(33		)	907			(125		)	651			336			142			314			100		2,292
Loans charged off	—			(242		)	(132		)	(703		)	(191		)	(219		)	(487		)	—			(1,974		)	(99		)	(175		)	(30		)	(250		)	(177		)	(59		)	(252		)	—		(1,042		)
Recoveries of loans previously charged off	—			9			—			83			—			15			85			—			192			—			90			—			307			40			13			58			—		508
Balance, end of period	$	3,818		$	14,715		$	1,857		$	9,151		$	7,629		$	2,910		$	1,788		$	1,436		$	43,304		$	3,686		$	15,537		$	1,702		$	9,859		$	7,828		$	3,006		$	1,908		$	1,536	$	45,062

Three Months Ended March 31, 2016
Three Months Ended June 30, 2016																												Three Months Ended June 30, 2016
Balance, beginning of period																												$	2,841		$	13,257		$	1,838		$	6,374		$	7,773		$	2,413		$	179		$	825	$	35,500
Provision for loan losses																												426			569			176			647			471			270			881			184		3,624
Loans charged off																												(56		)	(254		)	—			(335		)	(337		)	(166		)	(417		)	—		(1,565		)
Recoveries of loans previously charged off																												56			74			—			208			—			15			49			—		402
Balance, end of period																												$	3,267		$	13,646		$	2,014		$	6,894		$	7,907		$	2,532		$	692		$	1,009	$	37,961

Six Months Ended June 30, 2017																												Six Months Ended June 30, 2017
Balance, beginning of period	$	2,174		$	12,859		$	1,895		$	5,827		$	7,801		$	2,391		$	146		$	794		$	33,887		$	3,765		$	14,869		$	1,913		$	8,730		$	7,854		$	2,858		$	1,353		$	1,456	$	42,798
Provision (credit) for loan losses	749			936			(57		)	640			99			177			113			31			2,688			20			986			(49		)	1,692			302			398			1,151			80		4,580
Loans charged off	(82		)	(542		)	—			(221		)	(180		)	(191		)	(122		)	—			(1,338		)	(99		)	(417		)	(162		)	(953		)	(368		)	(278		)	(739		)	—		(3,016		)
Recoveries of loans previously charged off	—			4			—			128			53			36			42			—			263			—			99			—			390			40			28			143			—		700
Balance, end of period	$	2,841		$	13,257		$	1,838		$	6,374		$	7,773		$	2,413		$	179		$	825		$	35,500		$	3,686		$	15,537		$	1,702		$	9,859		$	7,828		$	3,006		$	1,908		$	1,536	$	45,062

Six Months Ended June 30, 2016																												Six Months Ended June 30, 2016
Balance, beginning of period																												$	2,174		$	12,859		$	1,895		$	5,827		$	7,801		$	2,391		$	146		$	794	$	33,887
Provision for loan losses																												1,175			1,505			119			1,287			570			447			994			215		6,312
Loans charged off																												(138		)	(796		)	—			(556		)	(517		)	(357		)	(539		)	—		(2,903		)
Recoveries of loans previously charged off																												56			78			—			336			53			51			91			—		665
Balance, end of period																												$	3,267		$	13,646		$	2,014		$	6,894		$	7,907		$	2,532		$	692		$	1,009	$	37,961

1921

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Further information pertaining to the allowance for loan losses and impaired loans at ~~March 31,~~June 30, 2017 and December 31, 2016 follows:


	Owner-Occupied CRE		Investor CRE		Construction		Commercial Business		Residential Real Estate		Home Equity		Other Consumer		Unallocated		Total		Owner-Occupied CRE		Investor CRE		Construction		Commercial Business		Residential Real Estate		Home Equity		Other Consumer		Unallocated		Total
	(In thousands)																		(In thousands)
March 31, 2017
June 30, 2017
Allowance related to loans individually evaluated and deemed impaired	$	—	$	—	$	—	$	512	$	67	$	—	$	—	$	—	$	579	$	—	$	—	$	—	$	511	$	123	$	1	$	—	$	—	$	635
Allowance related to loans collectively evaluated and not deemed impaired	3,818		14,715		1,857		8,417		7,562		2,910		1,788		1,436		42,503		3,686		15,537		1,702		9,125		7,705		3,005		1,908		1,536		44,204
Allowance related to loans acquired with deteriorated credit quality	—		—		—		222		—		—		—		—		222		—		—		—		223		—		—		—		—		223
Total allowance for loan losses	$	3,818	$	14,715	$	1,857	$	9,151	$	7,629	$	2,910	$	1,788	$	1,436	$	43,304	$	3,686	$	15,537	$	1,702	$	9,859	$	7,828	$	3,006	$	1,908	$	1,536	$	45,062

Loans deemed impaired	$	2,990	$	9,674	$	2,693	$	8,302	$	18,076	$	7,438	$	1,328	$	—	$	50,501	$	2,847	$	11,066	$	1,206	$	8,249	$	17,338	$	8,347	$	1,130	$	—	$	50,183
Loans not deemed impaired	430,368		1,687,469		132,296		759,542		1,149,352		508,887		222,116		—		4,890,030		427,001		1,750,617		119,891		783,360		1,155,202		529,783		234,789		—		5,000,643
Loans acquired with deteriorated credit quality	—		271		—		1,309		—		—		1,873		—		3,453		—		257		—		1,309		—		—		1,789		—		3,355
Total loans	$	433,358	$	1,697,414	$	134,989	$	769,153	$	1,167,428	$	516,325	$	225,317	$	—	$	4,943,984	$	429,848	$	1,761,940	$	121,097	$	792,918	$	1,172,540	$	538,130	$	237,708	$	—	$	5,054,181

December 31, 2016
Allowance related to loans individually evaluated and deemed impaired	$	—	$	—	$	—	$	646	$	68	$	—	$	—	$	—	$	714	$	—	$	—	$	—	$	646	$	68	$	—	$	—	$	—	$	714
Allowance related to loans collectively evaluated and not deemed impaired	3,765		14,869		1,913		7,862		7,786		2,858		1,353		1,456		41,862		3,765		14,869		1,913		7,862		7,786		2,858		1,353		1,456		41,862
Allowance related to loans acquired with deteriorated credit quality	—		—		—		222		—		—		—		—		222		—		—		—		222		—		—		—		—		222
Total allowance for loan losses	$	3,765	$	14,869	$	1,913	$	8,730	$	7,854	$	2,858	$	1,353	$	1,456	$	42,798	$	3,765	$	14,869	$	1,913	$	8,730	$	7,854	$	2,858	$	1,353	$	1,456	$	42,798

Loans deemed impaired	$	3,331	$	9,949	$	3,325	$	7,812	$	16,563	$	6,910	$	2,220	$	—	$	50,110	$	3,331	$	9,949	$	3,325	$	7,812	$	16,563	$	6,910	$	2,220	$	—	$	50,110
Loans not deemed impaired	413,387		1,694,190		149,403		715,436		1,139,664		529,862		205,136		—		4,847,078		413,387		1,694,190		149,403		715,436		1,139,664		529,862		205,136		—		4,847,078
Loans acquired with deteriorated credit quality	—		1,180		—		1,309		—		—		2,037		—		4,526		—		1,180		—		1,309		—		—		2,037		—		4,526
Total loans	$	416,718	$	1,705,319	$	152,728	$	724,557	$	1,156,227	$	536,772	$	209,393	$	—	$	4,901,714	$	416,718	$	1,705,319	$	152,728	$	724,557	$	1,156,227	$	536,772	$	209,393	$	—	$	4,901,714

Management has established the allowance for loan loss in accordance with GAAP at ~~March 31,~~June 30, 2017 based on the current risk assessment and level of loss that is believed to exist within the portfolio. This level of reserve is deemed an appropriate estimate of probable loan losses inherent in the loan portfolio as of ~~March 31,~~June 30, 2017 based upon the analysis conducted and given the portfolio composition, delinquencies, charge offs and risk rating changes experienced during the first ~~three~~six months of 2017 and the three-year evaluation period utilized in the analysis. Based on the qualitative assessment of the portfolio and in thorough consideration of non-performing loans, management believes that the allowance for loan losses properly supports the level of associated loss and risk.

2022

Table of Contents

The following is a summary of past due and non-accrual loans at ~~March 31,~~June 30, 2017 and December 31, 2016, including purchased credit impaired loans:


	30-59 Days Past Due		60-89 Days Past Due		Past Due 90 Days or More		Total Past Due		Past Due 90 Days or More and Still Accruing		Loans on Non-accrual		30-59 Days Past Due		60-89 Days Past Due		Past Due 90 Days or More		Total Past Due		Past Due 90 Days or More and Still Accruing		Loans on Non-accrual
	(In thousands)												(In thousands)
March 31, 2017
June 30, 2017
Owner-occupied CRE	$	192	$	14	$	1,801	$	2,007	$	—	$	2,400	$	705	$	282	$	1,513	$	2,500	$	—	$	2,265
Investor CRE	1,054		463		3,105		4,622		—		5,056		1,143		539		2,665		4,347		—		4,422
Construction	—		—		1,355		1,355		—		1,355		—		—		287		287		—		287
Commercial business loans	6,778		113		2,129		9,020		—		3,188		1,132		1,909		3,862		6,903		1,831		3,542
Residential real estate	9,149		1,366		6,739		17,254		—		15,606		28		1,549		6,094		7,671		—		14,559
Home equity	2,024		540		2,755		5,319		—		5,697		2,500		380		3,451		6,331		—		6,529
Other consumer	625		145		1,646		2,416		320		1,326		1,238		120		1,158		2,516		241		919
Total	$	19,822	$	2,641	$	19,530	$	41,993	$	320	$	34,628	$	6,746	$	4,779	$	19,030	$	30,555	$	2,072	$	32,523

December 31, 2016
Owner-occupied CRE	$	482	$	15	$	1,667	$	2,164	$	—	$	2,733	$	482	$	15	$	1,667	$	2,164	$	—	$	2,733
Investor CRE	2,184		697		3,260		6,141		—		4,858		2,184		697		3,260		6,141		—		4,858
Construction	709		—		1,933		2,642		—		2,138		709		—		1,933		2,642		—		2,138
Commercial business loans	3,289		41		2,373		5,703		38		2,409		3,289		41		2,373		5,703		38		2,409
Residential real estate	2,826		22		7,863		10,711		308		14,393		2,826		22		7,863		10,711		308		14,393
Home equity	2,232		722		2,797		5,751		56		5,330		2,232		722		2,797		5,751		56		5,330
Other consumer	838		379		1,095		2,312		348		2,202		838		379		1,095		2,312		348		2,202
Total	$	12,560	$	1,876	$	20,988	$	35,424	$	750	$	34,063	$	12,560	$	1,876	$	20,988	$	35,424	$	750	$	34,063

Loans reported as past due 90 days or more and still accruing represent loans that were evaluated by management and maintained on accrual status based on an evaluation of the borrower. At ~~March 31,~~June 30, 2017 and December 31, 2016, loans reported as past due 90 days or more and still accruing represent loans which carry a U.S. Government guarantee and therefore, ~~the~~all contractual ~~balances~~amounts have been determined to be collectible in full.

2123

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The following is a summary of impaired loans with and without a valuation allowance as of ~~March 31,~~June 30, 2017 and December 31, 2016:


	March 31, 2017						December 31, 2016						June 30, 2017						December 31, 2016
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
	(In thousands)												(In thousands)
Impaired loans without a valuation allowance:
Owner-occupied CRE	$	2,990	$	3,654	$	—	$	3,331	$	4,107	$	—	$	2,847	$	3,621	$	—	$	3,331	$	4,107	$	—
Investor CRE	9,674		10,244		—		9,949		10,601		—		11,066		11,531		—		9,949		10,601		—
Construction	2,693		2,759		—		3,325		5,051		—		1,206		1,247		—		3,325		5,051		—
Commercial business loans	6,186		7,491		—		3,742		4,856		—		6,249		7,701		—		3,742		4,856		—
Residential real estate	17,512		20,873		—		15,312		18,440		—		15,715		18,998		—		15,312		18,440		—
Home equity	7,438		8,517		—		6,910		7,864		—		8,095		9,084		—		6,910		7,864		—
Other consumer	1,328		1,331		—		2,220		2,220		—		1,130		1,866		—		2,220		2,220		—
Total	47,821		54,869		—		44,789		53,139		—		46,308		54,048		—		44,789		53,139		—

Impaired loans with a valuation allowance:
Commercial business loans	2,116		2,400		512		4,070		4,168		646		2,000		2,000		511		4,070		4,168		646
Residential real estate	564		597		67		1,251		1,267		68		1,623		1,657		123		1,251		1,267		68
Home equity													252		256		1		—		—		—
Total	2,680		2,997		579		5,321		5,435		714		3,875		3,913		635		5,321		5,435		714
Total impaired loans	$	50,501	$	57,866	$	579	$	50,110	$	58,574	$	714	$	50,183	$	57,961	$	635	$	50,110	$	58,574	$	714

The following is a summary of average recorded investment in impaired loans and interest income recognized on those loans for the periods indicated:



	For the Three Months Ended June 30, 2017				For the Three Months Ended June 30, 2016
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(In thousands)
Owner-occupied CRE	$	2,919	$	29	$	4,358	$	77
Investor CRE	10,370		118		11,598		160
Construction	1,950		10		4,737		54
Commercial business loans	8,276		90		14,085		221
Residential real estate	17,707		184		16,799		261
Home equity	7,893		59		5,291		55
Other consumer	1,229		—		767		1
Total	$	50,344	$	490	$	57,635	$	829

For the Three Months
Ended March 31, 2017 For the Three Months
Ended March 31, 2016
Average
Recorded
Investment Interest
Income
Recognized Average
Recorded
Investment Interest
Income
Recognized
(In thousands)
Owner-occupied CRE $ 3,161
$ 31
$ 4,109
$ 30
Investor CRE 9,812
88
12,697
81
Construction 3,009
12
4,986
18
Commercial business loans 8,057
144
13,361
107
Residential real estate 17,320
212
16,089
111
Home equity 7,174
58
5,193
30
Other consumer 1,774
—
16
—
Total $ 50,307
$ 545
$ 56,451
$ 377

Table of Contents



	For the Six Months Ended June 30, 2017				For the Six Months Ended June 30, 2016
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(In thousands)
Owner-occupied CRE	$	3,056	$	60	$	4,251	$	241
Investor CRE	10,230		206		12,373		107
Construction	2,408		22		4,711		74
Commercial business loans	8,121		234		13,735		337
Residential real estate	17,326		396		16,310		371
Home equity	7,565		117		5,280		85
Other consumer	1,559		—		514		1
Total	$	50,265	$	1,035	$	57,174	$	1,216

Troubled Debt Restructurings

The restructuring of a loan is considered a troubled debt restructuring (“TDR”) if both (i) the restructuring constitutes a concession by the creditor and (ii) the debtor is experiencing financial difficulties. A TDR may include (i) a transfer from the debtor to the creditor of receivables from third parties, real estate, or other assets to satisfy fully or partially a debt, (ii) issuance or other granting of an equity interest to the creditor by the debtor to satisfy fully or partially a debt unless the equity interest is granted pursuant to existing terms for converting debt into an equity interest, and (iii) modifications of terms of a debt.

The following table provides detail of TDR balances for the periods presented:



	At June 30, 2017		At December 31, 2016
	(In thousands)
Recorded investment in TDRs:
Accrual status	$	17,660	$	16,048
Non-accrual status	7,475		7,304
Total recorded investment in TDRs	$	25,135	$	23,352

Accruing TDRs performing under modified terms more than one year	$	7,266	$	10,020
Specific reserves for TDRs included in the balance of allowance for loan losses	$	635	$	714
Additional funds committed to borrowers in TDR status	$	—	$	3

2225

Table of Contents

Loans restructured as TDRs during the three and six months ended June 30, 2017 and 2016 are set forth in the following table:



	Three Months Ended					Six Months Ended
	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(Dollars in thousands)
June 30, 2017
Investor CRE	1	$	5,038	$	5,038	1	$	5,038	$	5,038
Commercial business	1	—		—		3	247		247
Residential real estate	3	522		522		3	522		522
Home equity	4	176		176		14	1,472		1,479
Total TDRs	9	$	5,736	$	5,736	21	$	7,279	$	7,286

June 30, 2016
Owner-occupied CRE	—	$	—	$	—	5	$	654	$	666
Construction	—	—		—		2	67		67
Commercial business	2	93		82		5	2,584		2,573
Residential real estate	5	549		550		9	943		944
Home equity	1	46		46		9	452		454
Total TDRs	8	$	688	$	678	30	$	4,700	$	4,704

Table of Contents

The following table provides ~~detail of TDR balances for the periods presented:~~

At March 31,
2017 At December 31,
2016
(In thousands)
Recorded investment in TDRs:
Accrual status $ 15,873
$ 16,048
Non-accrual status 8,252
7,304
Total recorded investment in TDRs $ 24,125
$ 23,352

Accruing TDRs performing under modified terms more than one year $ 10,387
$ 10,020
Specific reserves for TDRs included in the balance of allowance for loan losses $ 577
$ 714
Additional funds committed to borrowers in TDR status $ 7
$ 3

~~Loans restructured as TDRs during the three months ended March 31, 2017 and 2016 are set forth in the following table:~~

Three Months Ended
Number
of Contracts Pre-Modification
Outstanding
Recorded Investment Post-Modification
Outstanding
Recorded Investment
(Dollars in thousands)
March 31, 2017
Commercial business 2
$ 247
$ 247
Home equity 10
1,296
1,303
Total TDRs 12
$ 1,543
$ 1,550

March 31, 2016
Owner-occupied CRE 5
$ 654
$ 666
Construction 2
67
67
Commercial business 3
2,491
2,491
Residential real estate 4
394
394
Home equity 8
406
408
Total TDRs 22
$ 4,012
$ 4,026

~~The following table provides~~ information on loan balances modified as TDRs during the period:

Three Months Ended March 31,
2017 2016
Extended
Maturity Adjusted
Interest
Rates Adjusted Rate and Extended Maturity Payment Deferral Other Extended
Maturity Adjusted
Interest
Rates Adjusted Rate and Extended Maturity Payment Deferral Other
(In thousands)
Owner-occupied CRE $ —
$ —
$ —
$ —
$ —
$ 510
$ —
$ 86
$ —
$ 58
Construction —
—
—
—
—
23
—
44
—
—
Commercial business —
—
—
—
247
2,000
—
143
348
—
Residential real estate —
—
—
—
—
—
—
21
373
—
Home equity 312
—
297
687
—
—
—
336
70
—
$ 312
$ —
$ 297
$ 687
$ 247
$ 2,533
$ —
$ 630
$ 791
$ 58

~~Table of Contents~~



	Three Months Ended June 30,
	2017								2016
	Extended Maturity		Adjusted Rate and Extended Maturity		Payment Deferral		Other		Extended Maturity		Adjusted Rate and Extended Maturity		Payment Deferral		Other
	(In thousands)
Investor CRE	$	—	$	—	$	—	$	5,038	$	—	$	—	$	46	$	—
Commercial business	—		—		—		—		—		—		—		93
Residential real estate	155		220		147		—		—		361		188		—
Home equity	—		149		27		—		—		—		—		—
Total	$	155	$	369	$	174	$	5,038	$	—	$	361	$	234	$	93

	Six Months Ended June 30,
	2017								2016
	Extended Maturity		Adjusted Rate and Extended Maturity		Payment Deferral		Other		Extended Maturity		Adjusted Rate and Extended Maturity		Payment Deferral		Other
	(In thousands)
Owner-occupied CRE	$	—	$	—	$	—	$	—	$	510	$	86	$	—	$	58
Investor CRE	—		—		—		5,038		—		—		—		—
Construction	—		—		—		—		23		44		—		—
Commercial business	—		—		—		247		2,000		143		348		93
Residential real estate	155		220		147		—		—		382		561		—
Home equity	312		446		714		—		—		336		116		—
	$	467	$	666	$	861	$	5,285	$	2,533	$	991	$	1,025	$	151

The following table provides information on loans modified as TDRs within the previous 12 months and for which there was a payment default during the periods presented:


	March 31, 2017			March 31, 2016			June 30, 2017			June 30, 2016
	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment		Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
	(In thousands)						(In thousands)
Commercial business	—	$	—	3	$	1,201	—	$	—	1	$	442
Residential real estate	—	—		7	1,157		—	—		2	437
Home equity	4	232		—	—		1	63		—	—
Total	4	$	232	10	$	2,358	1	$	63	3	$	879

The majority of restructured loans were on accrual status as of ~~March 31,~~June 30, 2017 and December 31, 2016. Typically, residential loans are restructured with a modification and extension of the loan amortization and maturity at substantially the same interest rate as contained in the original credit extension. As part of the TDR process, the current value of the property is compared to the general ledger loan balance and if not fully supported, a charge-off is processed through the allowance for loan losses. Commercial real estate loans, commercial construction loans and commercial business loans also contain payment modification agreements and a like assessment of the underlying collateral value if the borrower’s cash flow may be inadequate to service the entire obligation.

Loan Servicing

The Company services certain loans for third parties. The aggregate balance of loans serviced for others was ~~$1.07~~$1.10 billion and $1.05 billion as of ~~March 31,~~June 30, 2017 and December 31, 2016, respectively. The balances of these loans are not included on the accompanying Consolidated Statements of Condition.

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The risks inherent in mortgage servicing rights relate primarily to changes in prepayments that result from shifts in mortgage interest rates. The fair value of mortgage servicing rights at ~~March 31,~~June 30, 2017 and December 31, 2016 was determined using pretax internal rates of return ranging from ~~9.5%~~9.4% to 11.5% and the Public Securities Association Standard Prepayment model to estimate prepayments on the portfolio with an average prepayment speed of ~~163~~175 and ~~183,~~166, respectively. The fair value of mortgage servicing rights is obtained from a third party provider.

During the three and six months ended ~~March 31,~~June 30, 2017, ~~and 2016,~~ the Company received servicing income of ~~$552,000~~$534,000 and ~~$440,000,~~$1.1 million, compared to $437,000 and $877,000, for the same periods in 2016, respectively. This income is included in income from mortgage banking activities in the Consolidated Statements of Net Income.

Mortgage servicing rights are included in other assets on the Consolidated Statements of Condition. Changes in the fair value of mortgage servicing rights are included in income from mortgage banking activities in the Consolidated Statements of Net Income. The following table summarizes mortgage servicing rights activity for the three and six months ended ~~March 31,~~June 30, 2017 and 2016.


	For the Three Months Ended March 31,						For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2017			2016			2017			2016			2017			2016
	(In thousands)						(In thousands)
Mortgage servicing rights:
Balance at beginning of period	$	10,104		$	7,074		$	10,284		$	6,271		$	10,104		$	7,074
Change in fair value recognized in net income	(260		)	(1,315		)	(670		)	(371		)	(930		)	(1,686		)
Issuances	440			512			558			689			998			1,201
Fair value of mortgage servicing rights at end of period	$	10,284		$	6,271		$	10,172		$	6,589		$	10,172		$	6,589

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Note 5.	Goodwill and Core Deposit Intangibles

The changes in the carrying amount of goodwill and core deposit intangible assets are summarized as follows:


	Goodwill		Core Deposit Intangibles			Goodwill		Core Deposit Intangibles
	(In thousands)					(In thousands)
Balance at December 31, 2015	$	115,281	$	7,506		$	115,281	$	7,506
Amortization expense	—		(1,604		)	—		(1,604		)
Balance at December 31, 2016	$	115,281	$	5,902		$	115,281	$	5,902
Amortization expense	—		(385		)	—		(738		)
Balance at March 31, 2017	$	115,281	$	5,517
Balance at June 30, 2017						$	115,281	$	5,164

Estimated amortization expense for the years ending December 31,
2017 (remaining nine months)			$	1,026
2017 (remaining six months)								$	673
2018			1,219					1,219
2019			1,026					1,026
2020			834					834
2021			642					642
2022 and thereafter			770					770
Total remaining			$	5,517				$	5,164

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On April 30, 2014, Rockville Financial, Inc. completed its merger with United Financial Bancorp, Inc. (“Legacy United”). Discussions throughout this report related to the merger with Legacy United are referred to as the “Merger”. The goodwill associated with the Merger is not tax deductible. In accordance with ASC 350, Intangibles – Goodwill and Other, goodwill is not amortized, but will be subject to an annual review of qualitative factors to determine if an impairment test is required. The amortizing intangible asset associated with the acquisition consists of the core deposit intangible. The core deposit intangible is being amortized using the sum of the years’ digits method over its estimated life of 10 years. Amortization expense of the core deposit intangible was ~~$385,000~~$353,000 and ~~$433,000~~$401,000 for the three months ended ~~March 31,~~June 30, 2017 and 2016, respectively, and was $738,000 and $834,000 for the six months ended June 30, 2017 and 2016, respectively.



Note 6.	Borrowings

Federal Home Loan Bank of Boston (“FHLBB”) Advances

The Company is a member of the FHLBB. Contractual maturities and weighted-average rates of outstanding advances from the FHLBB as of ~~March 31,~~June 30, 2017 and December 31, 2016 are summarized below:


	March 31, 2017				December 31, 2016				June 30, 2017				December 31, 2016
	Amount		Weighted- Average Rate		Amount		Weighted- Average Rate		Amount		Weighted- Average Rate		Amount		Weighted- Average Rate
	(Dollars in thousands)								(Dollars in thousands)
2017	$	721,000	1.08	%	$	803,000	0.94	%	$	678,000	1.28	%	$	803,000	0.94	%
2018	174,539		1.42		139,792		1.48		199,285		1.44		139,792		1.48
2019	30,000		1.51		20,000		1.45		45,000		1.57		20,000		1.45
2020	33,000		1.79		33,000		0.86		33,000		1.79		33,000		0.86
2021	30,000		0.59		30,000		0.59		—		—		30,000		0.59
Thereafter	19,058		0.88		19,182		0.89		33,933		1.15		19,182		0.89
	$	1,007,597	1.16	%	$	1,044,974	1.01	%	$	989,218	1.34	%	$	1,044,974	1.01	%

The total carrying value of FHLBB advances at ~~March 31,~~June 30, 2017 was ~~$1.01 billion,~~$990.2 million, which includes a remaining fair value adjustment of ~~$1.3 million~~$989,000 on acquired advances. At December 31, 2016, the total carrying value of FHLBB advances was $1.05 billion, with a remaining fair value adjustment of $1.7 million.

At ~~March 31,~~June 30, 2017, ~~eight~~five advances totaling ~~$183.0~~$73.0 million with interest rates ranging from ~~0.49%~~0.99% to 4.39%, which are scheduled to mature between 2017 and ~~2031,~~2032, are callable by the FHLBB. Advances are collateralized by first and second mortgage loans, ~~and~~as well as investment

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securities with an estimated eligible collateral value of ~~$1.56~~$1.52 billion and $1.41 billion at ~~March 31,~~June 30, 2017 and December 31, 2016, respectively.

In addition to the outstanding advances, the Company has access to an unused line of credit with the FHLBB amounting to $10.0 million at ~~March 31,~~June 30, 2017 and December 31, 2016. In accordance with an agreement with the FHLBB, the qualified collateral must be free and clear of liens, pledges and have a discounted value equal to the aggregate amount of the line of credit and outstanding advances. At ~~March 31,~~June 30, 2017, the Company could borrow immediately an additional ~~$463.9~~$445.3 million from the FHLBB, inclusive of the line of credit.

Other Borrowings

The following table presents other borrowings by category as of the dates indicated:


	March 31, 2017		December 31, 2016		June 30, 2017		December 31, 2016
	(In thousands)				(In thousands)
Subordinated debentures	$	79,775	$	79,716	$	79,835	$	79,716
Wholesale repurchase agreements	70,000		20,000		50,000		20,000
Customer repurchase agreements	17,102		18,897		14,603		18,897
Other	4,234		4,294		4,173		4,294
Total other borrowings	$	171,111	$	122,907	$	148,611	$	122,907

Subordinated Debentures

~~At March 31, 2017 and December 31, 2016, the carrying value of the Company’s subordinated debentures totaled $79.8 million and $79.7 million, respectively.~~

On September 23, 2014, the Company closed its public offering of $75.0 million of its 5.75% Subordinated Notes due October 1, 2024 (the “Notes”). The Notes were offered to the public at par. Interest on the Notes is payable semi-annually in arrears on

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April 1 and October 1 of each year, commencing on April 1, 2015. Issuance costs totaled $1.3 million and are being amortized over the life of the Notes as a component of interest expense.

In connection with the Merger, the Company has assumed junior subordinated debt 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 $2.3 million on May 1, 2014. The remaining unamortized discount was $2.0 million at ~~March 31,~~June 30, 2017. 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%. 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.

Repurchase Agreements

The following table presents the Company’s outstanding borrowings under repurchase agreements as of ~~March 31,~~June 30, 2017 and December 31, 2016:


	Remaining Contractual Maturity of the Agreements										Remaining Contractual Maturity of the Agreements
	Overnight		Up to 1 Year		1 - 3 Years		Greater than 3 Years		Total		Overnight		Up to 1 Year		1 - 3 Years		Greater than 3 Years		Total
	(In thousands)										(In thousands)
March 31, 2017
June 30, 2017
Repurchase Agreements
U.S. Agency Securities	$	17,102	$	—	$	70,000	$	—	$	87,102	$	14,603	$	30,000	$	20,000	$	—	$	64,603

December 31, 2016
Repurchase Agreements
U.S. Agency Securities	$	18,897	$	—	$	20,000	$	—	$	38,897	$	18,897	$	—	$	20,000	$	—	$	38,897

As of ~~March 31,~~June 30, 2017 and December 31, 2016, advances outstanding under wholesale reverse repurchase agreements totaled ~~$70.0~~$50.0 million and $20.0 million, respectively. The outstanding advances at ~~March 31,~~June 30, 2017 consisted of three individual borrowings with remaining terms of ~~three~~two years or less and a weighted average cost of ~~1.49%~~1.86%. The outstanding advances at December 31,

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2016 consisted of two individual borrowings with remaining terms of three years or less and had a weighted average cost of 2.59%. The Company pledged investment securities with a market value of ~~$77.8~~$54.4 million and $23.8 million as collateral for these borrowings at ~~March 31,~~June 30, 2017 and December 31, 2016, respectively.

Retail repurchase agreements primarily consist of transactions with commercial and municipal customers, are for a term of one day and are backed by the purchasers’ interest in certain U.S. Government Agency securities or government-sponsored securities. As of ~~March 31,~~June 30, 2017 and December 31, 2016, retail repurchase agreements totaled ~~$17.1~~$14.6 million and $18.9 million, respectively. The Company pledged investment securities with a market value of ~~$31.1~~$30.0 million and $28.5 million as collateral for these borrowings at ~~March 31,~~June 30, 2017 and December 31, 2016, respectively.

Given that the repurchase agreements are secured by investment securities valued at market value, the collateral position is susceptible to change based upon variation in the market value of the securities that can arise due to fluctuations in interest rates, among other things. In the event that the interest rate changes result in a decrease in the value of the pledged securities, additional securities will be required to be pledged in order to secure the borrowings. Due to the short term nature of the majority of the repurchase agreements, Management believes the risk of further encumbered securities pose a minimal impact to the Company’s liquidity position.

Other

At ~~March 31,~~June 30, 2017 and December 31, 2016 other borrowings consist of capital lease obligations. The Company has capital lease obligations for three of its leased banking branches.

Other Sources of Wholesale Funding

The Company has relationships with brokered sweep deposit providers by which funds are deposited by the counterparties at the Company’s request. Amounts outstanding under these agreements are reported as interest-bearing deposits and totaled ~~$356.4~~$361.4 million at a cost of ~~0.83%~~1.06% at ~~March 31,~~June 30, 2017 and $367.4 million at a cost of 0.58% at December 31, 2016. The Company maintains open dialogue with the brokered sweep providers and has the ability to increase the deposit balances upon request, up to certain limits based upon internal policy requirements.

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Additionally, the Company has unused federal funds lines of credit with four counterparties totaling $107.5 million at ~~March~~June 30, 2017 and December 31, ~~2017.~~2016.



Note 7.	Derivatives and Hedging Activities

Risk Management Objective of Using Derivatives

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposure to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s investments and borrowings. The Company also has interest rate derivatives that result from a service provided to certain qualifying customers. The Company manages a matched book with respect to these derivative instruments in order to minimize its net risk exposure resulting from such transactions.

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Information about interest rate swap agreements and non-hedging derivative assets and liabilities as of ~~March 31,~~June 30, 2017 and December 31, 2016 is as follows:


	Notional Amount		Weighted-Average Remaining Maturity		Weighted-Average Rate						Estimated Fair Value, Net Asset (Liability)			Notional Amount				Weighted-Average Remaining Maturity		Weighted-Average Rate						Estimated Fair Value, Net Asset (Liability)
				Received			Paid										Received			Paid
	(In thousands)			(In years)									(In thousands)			(In thousands)				(In years)								(In thousands)
March 31, 2017
June 30, 2017
Cash flow hedges:
Forward starting interest rate swaps on future borrowings	$	100,000	7.11		TBD		(1)	2.43	%		$	(2,365	)	$	100,000				6.86		TBD		(1)	2.43	%		$	(1,517	)
Interest rate swaps	240,000		3.00		1.06	%		1.74	%		(239		)	215,000				3.08		1.20	%		1.83	%		(2,824		)
Fair value hedges:
Interest rate swaps	35,000		0.47		1.04	%		1.05	%	(2)	(36		)	20,000				0.52		1.10	%		1.27	%	(2)	(38		)
Non-hedging derivatives:
Forward loan sale commitments	122,434		0.00								(685		)	198,156				0.00								199
Derivative loan commitments	37,297		0.00								759			45,122				0.00								656
Interest rate swap	7,500		9.29								(668		)	7,500				9.04								(574		)
Loan level swaps - dealer(3)	497,532		7.34		2.49	%		3.70	%		(3,802		)	562,009				6.65		2.54	%		3.38	%		(7,902		)
Loan level swaps - borrowers(3)	497,532		7.34		3.70	%		2.49	%		3,785			562,009				6.65		3.38	%		2.54	%		7,883
Total	$	1,537,295									$	(3,251	)	$	1,709,796											$	(4,117	)

December 31, 2016
Cash flow hedges:
Forward starting interest rate swaps on future borrowings	$	100,000	7.36		TBD		(1)	2.43	%		$	(483	)	$	100,000			7.36		TBD		(1)	2.43	%		$	(483	)
Interest rate swaps	240,000		3.24		0.91	%		1.74	%		(2,719		)	240,000				3.24		0.91	%		1.74	%		(2,719		)
Fair value hedges:
Interest rate swaps	35,000		0.72		1.04	%		0.82	%	(2)	1			35,000				0.72		1.04	%		0.82	%	(2)	1
Non-hedging derivatives:
Forward loan sale commitments	61,991		0.00								153			61,991				0.00								153
Derivative loan commitments	30,239		0.00								421			30,239				0.00								421
Interest rate swap	7,500		9.54								(660		)	7,500				9.54								(660		)
Loan level swaps - dealer(3)	468,417		7.75		2.42	%		3.84	%		(4,888		)	468,417				7.75		2.42	%		3.84	%		(4,888		)
Loan level swaps - borrowers(3)	468,417		7.75		3.84	%		2.42	%		4,869			468,417				7.75		3.84	%		2.42	%		4,869
Total	$	1,411,564									$	(3,306	)	$	1,411,564											$	(3,306	)


(1)	The receiver leg of the cash flow hedges is floating rate and indexed to the 3-month USD-LIBOR-BBA, as determined two London banking days prior to the first day of each calendar quarter, commencing with the earliest effective trade. The earliest effective trade date for these forward starting cash flow hedges is October 16, 2017.


(2)	The paying leg is one month LIBOR plus a fixed spread; above rate in effect as of the date indicated.


(3)	The Company offers a loan level hedging product to qualifying commercial borrowers that seek to mitigate risk to rising interest rates. As such, the Company enters into equal and offsetting trades with dealer counterparties. The Company may also enter into risk participation agreements with counterparties related to credit enhancements provided to the borrowers.

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

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The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. During the three and six months ended ~~March 31,~~June 30, 2017, the Company did not record any hedge ineffectiveness.

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. The Company expects to reclassify ~~$1.3~~$1.4 million from accumulated other comprehensive loss to interest expense during the next 12 months.

The Company is hedging its exposure to the variability in future cash flows for forecasted transactions over a period of approximately 60 months (excluding forecasted transactions related to the payment of variable interest on existing financial instruments).

As of ~~March 31,~~June 30, 2017, the Company had ~~nine~~eight outstanding interest rate derivatives with a notional value of ~~$340.0~~$315.0 million that were designated as cash flow hedges of interest rate risk.

Fair Value Hedges of Interest Rate Risk

The Company is exposed to changes in the fair value of certain of its fixed rate obligations due to changes in benchmark interest rates. The Company uses interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in the benchmark interest rate. Interest rate swaps designated as fair value hedges involve the receipt of fixed-rate amounts from a counterparty in exchange for the Company making variable rate payments over the life of the agreements without the exchange of the underlying notional amount.

For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting gain or loss on the hedged item attributable to the hedged risk are recognized in earnings. The Company includes the gain or loss on the hedged items in the same line item as the offsetting gain or loss on the related derivatives. For the three and six months ended ~~March 31,~~June 30, 2017 and 2016, the Company recognized a negligible net reduction to interest expense.

As of ~~March 31,~~June 30, 2017, the Company had ~~three~~two outstanding interest rate derivatives with a notional amount of ~~$35.0~~$20.0 million that were designated as a fair value hedge of interest rate risk.

Non-Designated Hedges

Loan Level Interest Rate Swaps

Qualifying derivatives not designated as hedges are not speculative and result from a service the Company provides to certain customers. The Company executes interest rate derivatives with commercial banking customers to facilitate their respective risk management strategies. Those interest rate derivatives are simultaneously hedged by offsetting derivatives that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings.

As of ~~March 31,~~June 30, 2017, the Company had ~~seventy-two~~eighty-one borrower-facing interest rate derivatives with an aggregate notional amount of ~~$497.5~~$562.0 million and ~~seventy-two~~eighty-one broker derivatives with an aggregate notional value amount of ~~$497.5~~$562.0 million related to this program.

As of ~~March 31,~~June 30, 2017, the Company had four risk participation agreements with three counterparties related to a loan level interest rate swap with four of its commercial banking customers. Of these agreements, three were entered into in conjunction with credit enhancements provided to the borrowers by the counterparties; therefore, if the borrowers default, the counterparties are responsible for a percentage of the exposure. One agreement has credit enhancements provided to the borrower by the Company, whereby the Company is responsible for a percentage of the exposure to the counterparty. At ~~March 31,~~June 30, 2017, the notional amount of this risk participation agreement was ~~$6.1~~$6.0 million, reflecting the counterparty participation of 33.1%. The risk participation agreements are a guarantee of performance on a derivative and accordingly, are recorded at fair value on the Company’s Consolidated Statements of Condition. At ~~March 31,~~June 30, 2017, the notional amount of the remaining three risk participation agreements was ~~$25.1~~$25.0 million, reflecting the counterparty participation level of ~~36.74%~~36.52%.

Mortgage Servicing Rights Interest Rate Swap

As of ~~March 31,~~June 30, 2017, the Company had one receive-fixed interest rate derivative with a notional amount of $7.5 million and a maturity date in July 2026. The derivative was executed to protect against a portion of the devaluation of the Company’s mortgage servicing right asset that occurs in a falling rate environment. The instrument is marked to market through the Company’s Consolidated Statements of Net Income.

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Derivative Loan Commitments

Additionally, the Company enters into mortgage loan commitments that are also referred to as derivative loan commitments if the loan that will result from exercise of the commitment will be held for sale upon funding. The Company enters into commitments to fund residential mortgage loans at specified rates and times in the future, with the intention that these loans will subsequently be sold in the secondary market.

Outstanding derivative loan commitments expose the Company to the risk that the price of the loans arising from exercise of the loan commitment might decline from inception of the rate lock to funding of the loan due to increases in mortgage interest rates. If interest rates increase, the value of these loan commitments decreases. Conversely, if interest rates decrease, the value of these loan commitments increases.

Forward Loan Sale Commitments

To protect against the price risk inherent in derivative loan commitments, the Company utilizes To Be Announced (“TBA”) as well as cash (“mandatory delivery” and “best efforts”) forward loan sale commitments to mitigate the risk of potential decreases in the values of loans that would result from the exercise of the derivative loan commitments.

With TBA and mandatory cash contracts, the Company commits to deliver a certain principal amount of mortgage loans to an investor/counterparty at a specified price on or before a specified date. If the market improves (rate decline) and the Company fails to deliver the amount of mortgages necessary to fulfill the commitment by the specified date, it is obligated to pay a “pair-off” fee, based on then-current market prices, to the investor/counterparty to compensate the investor for the shortfall. Conversely if the market declines (rates worsen) the investor/counterparty is obligated to pay a “pair-off” fee to the Company based on then-current market prices. The Company expects that these forward loan sale commitments, TBA and mandatory, will experience changes in fair value opposite to the change in fair value of derivative loan commitments.

With best effort cash contracts, the Company commits to deliver an individual mortgage loan of a specified principal amount and quality to an investor if the loan to the underlying borrower closes. Generally best efforts cash contracts have no pair off risk regardless of market movement. The price the investor will pay the seller for an individual loan is specified prior to the loan being funded (e.g., on the same day the lender commits to lend funds to a potential borrower). The Company expects that these forward loan sale commitments, best efforts, will experience a net neutral shift in fair value of derivative loan commitments.

Fair Values of Derivative Instruments on the Statement of Condition

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Statements of Condition as of ~~March 31,~~June 30, 2017 and December 31, 2016:


	Derivative Assets					Derivative Liabilities					Derivative Assets					Derivative Liabilities
		Fair Value					Fair Value					Fair Value					Fair Value
	Balance Sheet Location	Mar 31, 2017		Dec 31, 2016		Balance Sheet Location	Mar 31, 2017		Dec 31, 2016		Balance Sheet Location	Jun 30, 2017		Dec 31, 2016		Balance Sheet Location	Jun 30, 2017		Dec 31, 2016
	(In thousands)										(In thousands)
Derivatives designated as hedging instruments:
Interest rate swap - cash flow hedge	Other Assets	$	295	$	246	Other Liabilities	$	2,899	$	3,448	Other Assets	$	118	$	246	Other Liabilities	$	4,459	$	3,448
Interest rate swap - fair value hedge	Other Assets	2		18		Other Liabilities	38		17		Other Assets	—		18		Other Liabilities	38		17
Total derivatives designated as hedging instruments		$	297	$	264		$	2,937	$	3,465		$	118	$	264		$	4,497	$	3,465
Derivatives not designated as hedging instruments:
Forward loan sale commitments	Other Assets	$	4	$	204	Other Liabilities	$	689	$	51	Other Assets	$	310	$	204	Other Liabilities	$	111	$	51
Derivative loan commitments	Other Assets	759		421			—		—		Other Assets	656		421			—		—
Interest rate swap		—		—		Other Liabilities	668		660			—		—		Other Liabilities	574		660
Interest rate swap - with customers	Other Assets	7,202		7,864		Other Liabilities	3,417		2,995		Other Assets	10,582		7,864		Other Liabilities	2,699		2,995
Interest rate swap - with counterparties	Other Assets	3,417		2,981		Other Liabilities	7,219		7,869		Other Assets	2,686		2,981		Other Liabilities	10,588		7,869
Total derivatives not designated as hedging		$	11,382	$	11,470		$	11,993	$	11,575		$	14,234	$	11,470		$	13,972	$	11,575

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Effect of Derivative Instruments in the Company’s Consolidated Statements of Net Income and Changes in Stockholders’ Equity

The tables below presents the effect of derivative instruments in the Company’s Statements of Changes in Stockholders’ Equity designated as hedging instruments for the three and six months ended ~~March 31,~~June 30, 2017 and 2016:


Cash Flow Hedges
	Amount of Gain (Loss) Recognized in AOCI (Effective Portion)					Amount of Gain (Loss) Recognized in AOCI (Effective Portion)
Derivatives Designated as Cash Flow Hedging Instruments	Three Months Ended March 31,					Three Months Ended June 30,						Six Months Ended June 30,
	2017		2016			2017			2016			2017			2016
	(In thousands)					(In thousands)
Interest rate swaps	$	158	$	(9,535	)	$	(2,100	)	$	(3,139	)	$	(1,942	)	$	(11,436	)


	Amount of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)				Amount of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)					Amount of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
Derivatives Designated as Cash Flow Hedging Instruments	Three Months Ended March 31,				Three Months Ended June 30,					Six Months Ended June 30,
	2017		2016		2017			2016		2017			2016
	(In thousands)				(In thousands)
Interest rate swaps	$	440	$	619	$	(363	)	$	561	$	(803	)	$	1,180

The tables below present information pertaining to the Company’s derivatives in the Consolidated Statements of Net Income designated as hedging instruments for the three and six months ended ~~March 31,~~June 30, 2017 and 2016:


Fair Value Hedges
		Amount of Gain (Loss) Recognized in Income from Derivatives							Amount of Gain (Loss) Recognized in Income from Derivatives
Derivatives Designated as Fair Value Hedging Instruments	Location of Gain (Loss) Recognized in Income	Three Months Ended March 31,						Location of Gain (Loss) Recognized in Income	Three Months Ended June 30,						Six Months Ended June 30,
		2017			2016				2017			2016			2017			2016
		(In thousands)							(In thousands)
Interest Rate Swaps	Interest income	$	(36	)	$	149		Interest income	$	(3	)	$	24		$	(39	)	$	173

		Amount of Gain (Loss) Recognized in Income from Hedged Items							Amount of Gain (Loss) Recognized in Income from Hedged Items
		Three Months Ended March 31,							Three Months Ended June 30,						Six Months Ended June 30,
		2017			2016				2017			2016			2017			2016
		(In thousands)							(In thousands)
Interest Rate Swaps	Interest income	$	37		$	(149	)	Interest income	$	—		$	(24	)	$	37		$	(173	)

The table below presents information pertaining to the Company’s derivatives not designated as hedging instruments in the Consolidated Statements of Net Income as of ~~March 31,~~June 30, 2017 and 2016:


	Amount of Gain (Loss) Recognized in Income						Amount of Gain (Loss) Recognized in Income						Amount of Gain (Loss) Recognized in Income
	Three Months Ended March 31,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2017		2016
	(In thousands)						(In thousands)
Derivatives not designated as hedging instruments:
Derivative loan commitments	$	338		$	680		$	(102	)	$	637		$	236	$	1,316
Mortgage servicing rights derivative	(8		)	—			94			—			86		—
Forward loan sale commitments	(838		)	(269		)	884			(332		)	46		(601		)
Interest rate swaps	2			138			(2		)	(8		)	—		40
	$	(506	)	$	549		$	874		$	297		$	368	$	755

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Credit-risk-related Contingent Features

The Company has agreements with each of its derivative counterparties that contain a provision where if the counterparty defaults on any of its indebtedness or fails to maintain a well-capitalized rating, then the counterparty could also be declared in default on its derivative obligations and could be required to terminate its derivative positions with the counterparty.

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As of ~~March 31,~~June 30, 2017, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was ~~$11.7~~$16.2 million. As of ~~March 31,~~June 30, 2017, the Company has minimum collateral posting thresholds with certain of its derivative counterparties and has posted collateral of ~~$1.7~~$198.1 million against its obligations under these agreements. A degree of netting occurs on occasions where the Company has exposure to a counterparty and the counterparty has exposure to the Company. If the Company had breached any of these provisions at ~~March 31,~~June 30, 2017, it could have been required to settle its obligations under the agreements at the termination value and would have been required to pay any additional amounts due in excess of amounts previously posted as collateral with the respective counterparty.



Note 8.	Stock-Based Compensation Plans

The Company maintains and operates several stock incentive award plans to attract, retain and reward performance of qualified employees and directors who contribute to the success of the Company. These plans include those assumed by the Company in 2014 as a result of merger activity. Active plans, as of January 1, 2017 are:

•Rockville Financial, Inc. 2006 Stock Incentive Award Plan (the “2006 Plan”);

•Rockville Financial, Inc. 2012 Stock Incentive Plan (the “2012 Plan”);

•United Financial Bancorp, Inc. 2008 Equity Incentive Plan; and

•2015 Omnibus Stock Incentive Plan (the “2015 Plan”).

The 2015 Plan became effective on October 29, 2015 upon approval by the Company’s Shareholders. As of the effective date of the 2015 Plan, no other awards may be granted from the previously approved or assumed plans. The 2015 Plan allows the Company to use stock options, stock awards, and performance awards to attract, retain and reward performance of qualified employees and ~~others~~directors who contribute to the success of the Company. The 2015 Plan reserves a total of up to 4,050,000 shares (the “Cap”) of Company common stock for issuance upon the grant or exercise of awards made pursuant to the 2015 Plan. Of these shares, the Company may grant shares in the form of restricted stock, performance shares and other share-based awards and may grant stock options. However, the number of shares issuable will be adjusted by a “fungible ratio” of 2.35. This means that for each share award other than a stock option share or a stock appreciation right share, each 1 share awarded shall be deemed to be 2.35 shares awarded. As of ~~March 31,~~June 30, 2017, there were 2,910,144 shares available for future grants under the 2015 Plan.

For the ~~three-month~~six-month period ended ~~March 31,~~June 30, 2017, total employee and Director stock-based compensation expense recognized for stock options and restricted stock was ~~$37,000~~$71,000 with a related tax benefit of ~~$13,000~~$26,000 and ~~$660,000~~$1.4 million with a related tax benefit of ~~$238,000,~~$510,000, respectively. Of the total expense amount for the ~~three-month~~six-month period, the amount for Director stock-based compensation expense recognized (in the Consolidated Statements of Net Income as other non-interest expense) was ~~$104,000,~~$279,000, and the amount for officer stock-based compensation expense recognized (in the Consolidated Statements of Net Income as salaries and employee benefit expense) was ~~$593,000.~~$1.2 million. For the ~~three-month~~six-month period ended ~~March 31,~~June 30, 2016, total employee and Director stock-based compensation expense recognized for stock options and restricted stock was ~~$31,000~~$59,000 with a related tax benefit of ~~$11,000~~$21,000 and ~~$469,000~~$964,000 with a related tax benefit of ~~$169,000,~~$347,000, respectively.

For the three-month period ended June 30, 2017, total employee and Director stock-based compensation expense recognized for stock options and restricted stock was $34,000 with a related tax benefit of $12,000 and $754,000 with a related tax benefit of $272,000, respectively. Of the total expense amount for the three-month period ended June 30, 2017, the amount of Director stock-based compensation expense recognized (in the Consolidated Statements of Net Income as other non-interest expense) was $176,000, and the amount for officer stock-based compensation expense recognized ( in the Consolidated Statement of Net Income as salaries and employee benefit expense) was $613,000. For the three-month period ended June 30, 2016, total employee and Director stock-based compensation expense recognized for stock options and restricted stock was $28,000 with a related tax benefit of $10,000 and $495,000 with a related tax benefit of $178,000, respectively.

The fair values of stock option and restricted stock awards, measured at grant date, are amortized to compensation expense on a straight-line basis over the vesting period.

Stock Options

The following table presents the activity related to stock options outstanding, including options that have stock appreciation rights (“SARs”), under the Plans for the ~~three~~six months ended ~~March 31,~~June 30, 2017:


	Number of Stock Options		Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in millions)		Number of Stock Options		Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in millions)
Outstanding at December 31, 2016	1,936,453		$	11.21				1,936,453		$	11.21
Granted	—		—					—		—
Exercised	(38,068	)	9.87					(74,522	)	10.38			$	0.6
Forfeited or expired	—		—					—		—
Outstanding at March 31, 2017	1,898,385		$	11.24	5.0	$	11.0
Stock options vested and exercisable at March 31, 2017	1,802,218		$	11.10	4.8	$	10.6
Outstanding at June 30, 2017								1,861,931		$	11.24	4.7	$	10.1
Stock options vested and exercisable at June 30, 2017								1,841,828		$	11.22	4.7	$	10.1

As of ~~March 31,~~June 30, 2017, the unrecognized cost related to outstanding stock options was ~~$70,000~~$37,000 and will be recognized over a weighted-average period of ~~1.4~~2.0 years.

There were no stock options granted during the ~~three~~six months ended ~~March 31,~~June 30, 2017 and 2016.

Options exercised may include awards that were originally granted as tandem SARs. Therefore, if the SAR component is exercised, it will not equate to the number of shares issued due to the conversion of the SAR option value to the actual share value

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at exercise date. There were no options with a SAR component included in total options exercised during the ~~three~~six months ended ~~March 31,~~June 30, 2017.

Restricted Stock

Restricted stock provides grantees with rights to shares of common stock upon completion of a service period. During the restriction period, all shares are considered outstanding and dividends are paid on the restricted stock. During the ~~three~~six months ended ~~March 31,~~June 30, 2017, the Company issued 2,517 shares of restricted stock from shares available under the Company’s 2015 Plan to certain employees. During the ~~three~~six months ended ~~March 31,~~June 30, 2017, the weighted-average grant date fair value was $17.86 per share and the restricted stock awards vest in equal annual installments on the anniversary date over a 3 year period. The following table presents the activity for restricted stock for the ~~three~~six months ended ~~March 31,~~June 30, 2017:


	Number of Shares		Weighted-Average Grant-Date Fair Value		Number of Shares		Weighted-Average Grant-Date Fair Value
Unvested as of December 31, 2016	438,806		$	14.23	438,806		$	14.23
Granted	2,517		17.86		2,517		17.86
Vested	(16,115	)	12.28		(35,744	)	13.29
Forfeited	—		—		(1,419	)	13.22
Unvested as of March 31, 2017	425,208		$	14.33
Unvested as of June 30, 2017					404,160		$	14.34

As of ~~March 31,~~June 30, 2017, there was ~~$4.2~~$3.4 million of total unrecognized compensation cost related to unvested restricted stock, which is expected to be recognized over a weighted-average period of 2.2 years.

Employee Stock Ownership Plan

As part of the second-step conversion and stock offering completed in 2011, the Employee Stock Ownership Plan (“ESOP”)borrowed an additional $7.1 million from the Company to purchase 684,395 shares of common stock during the initial public offering and in the open market. The outstanding loan balance of $6.2 million at ~~March 31,~~June 30, 2017 will be repaid principally from the Bank’s discretionary contributions to the ESOP over a remaining period of 24 years. The loan bears an interest rate of prime ~~plus~~ plus one percent. The unallocated ESOP shares are pledged as collateral on the loans. As the loans are repaid to the Company, shares will be released from collateral and will be allocated to the accounts of the participants. For the three months ended ~~March 31,~~June 30, 2017 and 2016, ESOP compensation expense was ~~$101,000~~$97,000 and ~~$66,000,~~$74,000. For the six months ended June 30, 2017 and 2016, ESOP compensation expense was $197,000 and $140,000, respectively.

The Company accounts for its ESOP in accordance with FASB ASC 718-40, Compensation – Stock Compensation. Under this guidance, unearned ESOP shares are not considered outstanding and are shown as a reduction of stockholders’ equity as unearned compensation. The Company will recognize compensation cost equal to the fair value of the ESOP shares during the periods in which they are committed to be allocated. To the extent that the fair value of the Company’s ESOP shares differs from the cost of such shares, this difference will be credited or debited to equity. As the loan is internally leveraged, the loan receivable

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from the ESOP to the Company is not reported as an asset nor is the debt of the ESOP shown as a liability in the Company’s consolidated financial statements. Dividends on unallocated shares are used to pay the ESOP debt.

The ESOP shares as of the period indicated below were as follows:


	March 31, 2017		June 30, 2017
Allocated shares	1,198,052		1,198,052
Shares allocated for release	5,703		11,407
Unreleased shares	541,813		536,109
Total ESOP shares	1,745,568		1,745,568
Market value of unreleased shares (in thousands)	$	9,313	$	9,138



Note 9.	Regulatory Matters

Minimum regulatory capital requirements

The Company (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s and the Bank’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve qualitative measures of their assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are

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also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies.

Federal banking regulators include minimum capital ratios as displayed in the following table. Additionally, community banking institutions must maintain a capital conservation buffer of common equity Tier I capital in an amount greater than 2.5% of total risk-weighted assets to avoid being subject to limitations on capital distributions and discretionary bonuses. The capital conservation buffer is being phased in over three years, beginning on January 1, 2016, with an initial phase-in of 0.625%. Also, certain deductions from and adjustments to regulatory capital are being phased in over several years. Management believes that the Company capital levels will remain characterized as “well capitalized” throughout the phase in periods.

As of ~~March 31,~~June 30, 2017, the most recent notification from the Federal Deposit Insurance Corporation categorized the Bank as well capitalized under the regulatory framework from prompt corrective action. To be categorized as well capitalized, an institution must maintain minimum ratios as set forth in the following tables. There are no conditions or events since the notification that management believes have changed the Bank’s category. Management believes, as of ~~March 31,~~June 30, 2017 and December 31, 2016, that the Company and the Bank meet all capital adequacy requirements to which they are subject. The Company’s and the Bank’s actual capital amounts and ratios as of ~~March 31,~~June 30, 2017 and December 31, 2016 are also presented in the following table:

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	Actual				Minimum For Capital Adequacy Purposes				Minimum To Be Well-Capitalized Under Prompt Corrective Action Provisions				Actual				Minimum For Capital Adequacy Purposes				Minimum To Be Well-Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in thousands)												(Dollars in thousands)
United Bank
March 31, 2017
June 30, 2017
Total capital to risk weighted assets	$	623,890	12.2	%	$	409,108	8.0	%	$	511,385	10.0	%	$	638,997	12.0	%	$	425,998	8.0	%	$	532,498	10.0	%
Common equity tier 1 capital to risk weighted assets	578,990		11.3		230,571		4.5		333,047		6.5		592,155		11.1		240,063		4.5		346,757		6.5
Tier 1 capital to risk weighted assets	578,990		11.3		307,428		6.0		409,904		8.0		592,155		11.1		320,084		6.0		426,778		8.0
Tier 1 capital to total average assets	578,990		9.0		257,329		4.0		321,661		5.0		592,155		8.9		266,137		4.0		332,671		5.0
December 31, 2016
Total capital to risk weighted assets	$	619,020	12.1	%	$	409,269	8.0	%	$	511,587	10.0	%	$	619,020	12.1	%	$	409,269	8.0	%	$	511,587	10.0	%
Common equity tier 1 capital to risk weighted assets	574,632		11.2		230,879		4.5		333,492		6.5		574,632		11.2		230,879		4.5		333,492		6.5
Tier 1 capital to risk weighted assets	574,632		11.2		307,839		6.0		410,451		8.0		574,632		11.2		307,839		6.0		410,451		8.0
Tier 1 capital to total average assets	574,632		9.0		255,392		4.0		319,240		5.0		574,632		9.0		255,392		4.0		319,240		5.0

United Financial Bancorp, Inc.
March 31, 2017
June 30, 2017
Total capital to risk weighted assets	$	674,770	13.1	%	$	412,073	8.0	%	N/A		N/A		$	691,222	12.9	%	$	428,665	8.0	%	N/A		N/A
Common equity tier 1 capital to risk weighted assets	554,870		10.8		231,196		4.5		N/A		N/A		569,380		10.6		241,718		4.5		N/A		N/A
Tier 1 capital to risk weighted assets	554,870		10.8		308,261		6.0		N/A		N/A		569,380		10.6		322,291		6.0		N/A		N/A
Tier 1 capital to total average assets	554,870		8.6		258,079		4.0		N/A		N/A		569,380		8.5		267,944		4.0		N/A		N/A
December 31, 2016
Total capital to risk weighted assets	$	668,816	13.0	%	$	411,579	8.0	%	N/A		N/A		$	668,816	13.0	%	$	411,579	8.0	%	N/A		N/A
Common equity tier 1 capital to risk weighted assets	549,428		10.7		231,068		4.5		N/A		N/A		549,428		10.7		231,068		4.5		N/A		N/A
Tier 1 capital to risk weighted assets	549,428		10.7		308,090		6.0		N/A		N/A		549,428		10.7		308,090		6.0		N/A		N/A
Tier 1 capital to total average assets	549,428		8.6		255,548		4.0		N/A		N/A		549,428		8.6		255,548		4.0		N/A		N/A

Our ability to pay dividends to our stockholders is substantially dependent upon the Bank’s ability to pay dividends to the Company. The Federal Reserve guidance sets forth the supervisory expectation that bank holding companies will inform and consult with Federal Reserve staff in advance of issuing a dividend that exceeds earnings for the quarter and should not pay dividends in a rolling four quarter period in an amount that exceeds net income for that period. Federal law also prohibits the Bank from paying dividends that would be greater than its undivided profits after deducting statutory bad debt in excess of its allowance for loan losses. The FDIC may limit a savings bank’s ability to pay dividends. No dividends may be paid to the Company’s shareholder if such dividends would reduce stockholders’ equity below the amount of the liquidation account required by the Connecticut conversion regulations. Connecticut law restricts the amount of dividends that the Bank can pay based on net income

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included in retained earnings for the current year and the preceding two years. As of ~~March 31,~~June 30, 2017 and December 31, 2016, ~~$87.3~~$96.8 million and $79.8 million, respectively, was available for the payment of dividends. Connecticut banking laws grant banks broad lending authority. With certain limited exceptions, any one obligor under this statutory authority may not exceed 10% and 15%, respectively, of a bank’s capital and allowance for loan losses.

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Note 10.	Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss, included in stockholders’ equity, are as follows:


	March 31, 2017			December 31, 2016			June 30, 2017			December 31, 2016
	(In thousands)						(In thousands)
Benefit plans:
Unrecognized net actuarial loss	$	(7,791	)	$	(7,936	)	$	(7,647	)	$	(7,936	)
Tax effect	2,807			2,859			2,755			2,859
Net-of-tax amount	(4,984		)	(5,077		)	(4,892		)	(5,077		)
Securities available for sale:
Net unrealized loss	(9,322		)	(12,845		)	(4,335		)	(12,845		)
Tax effect	3,352			4,617			1,560			4,617
Net-of-tax amount	(5,970		)	(8,228		)	(2,775		)	(8,228		)
Interest rate swaps:
Net unrealized loss	(2,604		)	(3,202		)	(4,341		)	(3,202		)
Tax effect	939			1,154			1,564			1,154
Net-of-tax amount	(1,665		)	(2,048		)	(2,777		)	(2,048		)
	$	(12,619	)	$	(15,353	)	$	(10,444	)	$	(15,353	)



Note 11.	Net Income Per Share

The following table sets forth the calculation of basic and diluted net income per share for the three and six months ended ~~March 31,~~June 30, 2017 and 2016:


	For the Three Months Ended March 31,						For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2017			2016			2017			2016			2017			2016
	(In thousands, except share data)						(In thousands, except share data)
Net income available to common stockholders	$	13,726		$	11,894		$	16,200		$	9,058		$	29,926		$	20,952
Weighted-average common shares outstanding	50,803,377			49,991,583			50,757,061			50,186,134			50,780,091			50,088,859
Less: average number of unallocated ESOP award shares	(545,552		)	(568,365		)	(539,849		)	(562,662		)	(542,685		)	(565,514		)
Weighted-average basic shares outstanding	50,257,825			49,423,218			50,217,212			49,623,472			50,237,406			49,523,345
Dilutive effect of stock options	771,970			229,414			621,879			323,167			649,718			279,334
Weighted-average diluted shares	51,029,795			49,652,632			50,839,091			49,946,639			50,887,124			49,802,679
Net income per share:
Basic	$	0.27		$	0.24		$	0.32		$	0.18		$	0.60		$	0.42
Diluted	$	0.27		$	0.24		$	0.32		$	0.18		$	0.59		$	0.42

There were no anti-dilutive stock options during the three months and six months ended ~~March 31,~~June 30, 2017. For the three and six months ended ~~March 31,~~June 30, 2016, the weighted-average number of anti-dilutive stock options excluded from diluted net income per share were ~~717,501.~~625,273 and 684,796, respectively. Stock options were anti-dilutive because the strike price is greater than the average fair value of the Company’s common stock for the periods presented.



Note 12.	Fair Value Measurements

Fair value estimates are made as of a specific point in time based on the characteristics of the assets and liabilities and relevant market information. In accordance with FASB ASC 820, the fair value estimates are measured within the fair value hierarchy. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1

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measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:


Level 1:	Quoted prices are available in active markets for identical assets and liabilities as of the reporting date. The quoted price is not adjusted because of the size of the position relative to trading volume.

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Level 2:	Pricing inputs are observable for assets and liabilities, either directly or indirectly, but are not the same as those used in Level 1. Fair value is determined through the use of models or other valuation methodologies.


Level 3:	Pricing inputs are unobservable for assets and liabilities and include situations where there is little, if any, market activity and the determination of fair value requires significant judgment or estimation.

The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such instances, the determination of which category within the fair value hierarchy is appropriate for any given asset and liability is based on the lowest level of input that is significant to the fair value of the asset and liability.

When available, quoted market prices are used. In other cases, fair values are based on estimates using present value or other valuation techniques. These techniques involve uncertainties and are significantly affected by the assumptions used and judgments made regarding risk characteristics of various financial instruments, discount rates, estimates of future cash flows, future expected loss experience and other factors. Changes in assumptions could significantly affect these estimates and could be material. Derived fair value estimates may not be substantiated by comparison to independent markets and, in certain cases, could not be realized in an immediate sale of the instrument.

Fair value estimates for financial instrument fair value disclosures are based on existing financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not financial instruments. Accordingly, the aggregate fair value amounts presented do not purport to represent the underlying market value of the Company.

Loans Held for Sale

The Company has elected the fair value option for its portfolio of residential real estate mortgage loans held for sale to reduce certain timing differences and better match changes in fair value of the loans with changes in the fair value of the derivative loan sale contracts used to economically hedge them.

The aggregate principal amount of the residential real estate mortgage loans held for sale was ~~$85.1~~$152.7 million and $61.9 million at ~~March 31,~~June 30, 2017 and December 31, 2016, respectively. The aggregate fair value of these loans as of the same dates was ~~$87.0~~$157.5 million and $62.5 million, respectively.

There were no residential real estate mortgage loans held for sale 90 days or more past due at ~~March 31,~~June 30, 2017 and December 31, 2016.

The following table presents the gains in fair value related to mortgage loans held for sale for the periods indicated. Changes in the fair value of mortgage loans held for sale are reported as a component of income from mortgage banking activities in the Consolidated Statements of Net Income.

Three Months Ended
March 31,
2017 2016
(In thousands)
Mortgage loans held for sale $ 1,137
$ 30



	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
	(In thousands)
Mortgage loans held for sale	$	1,639	$	10	$	2,776	$	40

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables detail the assets and liabilities carried at fair value on a recurring basis as of ~~March 31,~~June 30, 2017 and December 31, 2016 and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine the fair value. There were no transfers in and out of Level 1, Level 2 and Level 3 measurements during the ~~three~~six months ended ~~March 31,~~June 30, 2017 and 2016.

3640

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	Total Fair Value		Quoted Prices in Active Markets for Identical Assets		Other Observable Inputs		Significant Unobservable Inputs		Total Fair Value		Quoted Prices in Active Markets for Identical Assets		Other Observable Inputs		Significant Unobservable Inputs
			(Level 1)		(Level 2)		(Level 3)				(Level 1)		(Level 2)		(Level 3)
	(In thousands)								(In thousands)
March 31, 2017
June 30, 2017
Available-for-Sale Securities:
Government-sponsored residential mortgage-backed securities	$	223,734	$	—	$	223,734	$	—	$	222,862	$	—	$	222,862	$	—
Government-sponsored residential collateralized debt obligations	204,278		—		204,278		—		188,903		—		188,903		—
Government-sponsored commercial mortgage-backed securities	22,224		—		22,224		—		25,568		—		25,568		—
Government-sponsored commercial collateralized debt obligations	140,561		—		140,561		—		153,617		—		153,617		—
Asset-backed securities	156,185		—		5,311		150,874		151,596		—		—		151,596
Corporate debt securities	86,568		—		84,963		1,605		84,566		—		82,982		1,584
Obligations of states and political subdivisions	231,574		—		231,574		—		235,226		—		235,226		—
Marketable equity securities	10,605		369		10,236		—		11,046		364		10,682		—
Total available-for-sale securities	$	1,075,729	$	369	$	922,881	$	152,479	$	1,073,384	$	364	$	919,840	$	153,180

Mortgage loan derivative assets	$	763	$	—	$	763	$	—	$	966	$	—	$	966	$	—
Mortgage loan derivative liabilities	689		—		689		—		111		—		111		—
Loans held for sale	87,031		—		87,031		—		157,487		—		157,487		—
Mortgage servicing rights	10,284		—		—		10,284		10,172		—		—		10,172
Interest rate swap assets	10,916		—		10,916		—		13,386		—		13,386		—
Interest rate swap liabilities	14,241		—		14,241		—		18,358		—		18,358		—

December 31, 2016
Available-for-Sale Securities:
Government-sponsored residential mortgage-backed securities	$	179,548	$	—	$	179,548	$	—	$	179,548	$	—	$	179,548	$	—
Government-sponsored residential collateralized-debt obligations	183,260		—		183,260		—		183,260		—		183,260		—
Government-sponsored commercial mortgage-backed securities	26,530		—		26,530		—		26,530		—		26,530		—
Government-sponsored commercial collateralized-debt obligations	162,927		—		162,927		—		162,927		—		162,927		—
Asset-backed securities	166,967		—		13,087		153,880		166,967		—		13,087		153,880
Corporate debt securities	75,015		—		73,423		1,592		75,015		—		73,423		1,592
Obligations of states and political subdivisions	216,376		—		216,376		—		216,376		—		216,376		—
Marketable equity securities	32,788		375		32,413		—		32,788		375		32,413		—
Total available-for-sale securities	$	1,043,411	$	375	$	887,564	$	155,472	$	1,043,411	$	375	$	887,564	$	155,472

Mortgage loan derivative assets	$	625	$	—	$	625	$	—	$	625	$	—	$	625	$	—
Mortgage loan derivative liabilities	51		—		51		—		51		—		51		—
Loans held for sale	62,517		—		62,517		—		62,517		—		62,517		—
Mortgage servicing rights	10,104		—		—		10,104		10,104		—		—		10,104
Interest rate swap assets	11,109		—		11,109		—		11,109		—		11,109		—
Interest rate swap liabilities	14,989		—		14,989		—		14,989		—		14,989		—

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The following table presents additional information about assets measured at fair value on a recurring basis for which the Company utilized Level 3 inputs to determine fair value:


	Three Months Ended March 31,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2017			2016
	(In thousands)						(In thousands)
Balance of available-for-sale securities, at beginning of period	$	155,472		$	146,070		$	152,479		$	144,206		$	155,472		$	146,070
Purchases (sales)	(3,801		)	—			3,550			(1,000		)	(251		)	(1,000		)
Principal payments and net accretion	(139		)	(384		)	(2,641		)	(163		)	(2,780		)	(478		)
Total realized gains included in earnings	159			—
Total realized gains (losses) included in earnings							338			(150		)	497			(150		)
Total unrealized gains (losses) included in other comprehensive income/loss	788			(1,480		)	(546		)	2,241			242			692
Balance at end of period	$	152,479		$	144,206		$	153,180		$	145,134		$	153,180		$	145,134

Balance of mortgage servicing rights, at beginning of period	$	10,104		$	7,074		$	10,284		$	6,271		$	10,104		$	7,074
Issuances	440			512			558			689			998			1,201
Change in fair value recognized in net income	(260		)	(1,315		)	(670		)	(371		)	(930		)	(1,686		)
Balance at end of period	$	10,284		$	6,271		$	10,172		$	6,589		$	10,172		$	6,589

The following valuation methodologies are used for certain assets that are recorded at fair value on a recurring basis.

Available-for-Sale Securities: Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using an independent pricing service. Level 1 securities are those traded on active markets for identical securities including U.S. treasury securities, equity securities and mutual funds. Level 2 securities include U.S. Government agency obligations, U.S. Government-sponsored enterprises, mortgage-backed securities, obligations of states and political subdivisions, corporate and other debt securities. Level 3 securities include private placement securities and thinly traded equity securities. All fair value measurements are obtained from a third party pricing service and are not adjusted by management.

Matrix pricing is used for pricing most obligations of states and political subdivisions, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for specific securities but rather by relying on securities relationships to other benchmark quoted securities. The grouping of securities is completed according to insurer, credit support, state of issuance and rating to incorporate additional spreads and municipal bond yield curves.

The valuation of the Company’s asset-backed securities is obtained from a third party pricing provider and is determined utilizing an approach that combines advanced analytics with structural and fundamental cash flow analysis based upon observed market based yields. The third party provider’s model analyzes each instrument’s underlying collateral given observable collateral characteristics and credit statistics to extrapolate future performance and project cash flows, by incorporating expectations of default probabilities, recovery rates, prepayment speeds, loss severities and a derived discount rate. The Company has determined that due to the liquidity and significance of unobservable inputs, that asset-backed securities are classified in Level 3 of the valuation hierarchy.

The Company holds one pooled trust preferred security. The security’s fair value is based on unobservable issuer-provided financial information and discounted cash flow models derived from the underlying structured pool and therefore is classified as Level 3.

Loans Held for Sale: The fair value of residential mortgage loans held for sale is estimated using quoted market prices for loans with similar characteristics provided by government-sponsored entities. Any changes in the valuation of mortgage loans held for sale is based upon the change in market interest rates between closing the loan and the measurement date and an immaterial portion attributable to changes in instrument-specific credit risk. The Company has determined that loans held for sale are classified in Level 2 of the valuation hierarchy.

Mortgage Servicing Rights: A mortgage servicing right (“MSR”) asset represents the amount by which the present value of the estimated future net cash flows to be received from servicing loans are expected to more than adequately compensate the Company for performing the servicing. The fair value of servicing rights is provided by a third party and is estimated using a present value cash flow model. The most important assumptions used in the valuation model are the anticipated rate of the loan prepayments and discount rates. Adjustments are recorded monthly as the cash flows derived from the valuation model change

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the fair value of the asset. Although some assumptions in determining fair value are based on standards used by market participants,

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some are based on unobservable inputs and therefore are classified in Level 3 of the valuation hierarchy. See Note 4, “Loans Receivable and Allowance for Loan Losses” in the Notes to Consolidated Financial Statements contained elsewhere in this report.

Derivatives: Derivative instruments related to commitments for loans to be sold are carried at fair value. Fair value is determined through quotes obtained from actively traded mortgage markets. Any change in fair value for rate lock commitments to the borrower is based upon the change in market interest rates between making the rate lock commitment and the measurement date and, for forward loan sale commitments to the investor, is based upon the change in market interest rates from entering into the forward loan sales contract and the measurement date. Both the rate lock commitments to the borrowers and the forward loan sale commitments to investors are derivatives pursuant to the requirements of FASB ASC 815-10; however, the Company has not designated them as hedging instruments. Accordingly, they are marked to fair value through earnings.

The Company’s intention is to sell the majority of its fixed rate mortgage loans with original terms of 30 years on a servicing retained basis as well as certain 10, 15 and 20 year loans. The servicing value has been included in the pricing of the rate lock commitments. The Company estimates a fallout rate of approximately ~~14.5%~~18.5% based upon historical averages in determining the fair value of rate lock commitments. Although the use of historical averages is based upon unobservable data, the Company believes that this input is insignificant to the valuation and, therefore, has concluded that the fair value measurements meet the Level 2 criteria. The Company continually reassesses the significance of the fallout rate on the fair value measurement and updates the fallout rate accordingly.

Hedging derivatives include interest rate swaps as part of management’s strategy to manage interest rate risk. The valuation of the Company’s interest rate swaps is obtained from a third-party pricing service and is determined using a discounted cash flow analysis on the expected cash flows of each derivative. The pricing analysis is based on observable inputs for the contractual terms of the derivatives, including the period to maturity and interest rate curves. The Company has determined that the majority of the inputs used to value its interest rate derivatives fall within Level 2 of the fair value hierarchy.

The following table presents additional quantitative information about assets measured at fair value on a recurring basis for which the Company utilized Level 3 inputs to determine fair value at ~~March 31,~~June 30, 2017:


(Dollars in thousands)
	Fair Value		Valuation Technique	Unobservable Inputs	Range (Weighted Average)	Fair Value		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Asset-backed securities	$	150,874	Discounted Cash Flow	Discount Rates	2.8% - 4.3% (3.9%)	$	151,596	Discounted Cash Flow	Discount Rates	2.9% - 4.1% (4.13%)
				Cumulative Default %	4.8% - 8.7% (9.6%)				Cumulative Default %	4.8% - 9.5% (9.10%)
				Loss Given Default	1.4% - 2.7% (3.0%)				Loss Given Default	1.4% - 3.0% (2.86%)

Corporate debt - pooled trust	$	1,605	Discounted Cash Flow	Discount Rate	7.3% (7.3%)	$	1,584	Discounted Cash Flow	Discount Rate	7.0% (7.0%)
preferred security				Cumulative Default %	2.7% - 41.4% (12.6%)				Cumulative Default %	2.7% - 41.3% (12.54%)
				Loss Given Default	85% - 100% (93.8%)				Loss Given Default	85% - 100% (93.9%)
				Cure Given Default	75% - 75% (75.0%)				Cure Given Default	75% - 75% (75.0%)

Mortgage servicing rights	$	10,284	Discounted Cash Flow	Discount Rate	9.0% - 18.0% (10.5%)	$	10,172	Discounted Cash Flow	Discount Rate	9.0% - 18.0% (10.4%)
				Cost to Service	$50 - $110 ($63.09)				Cost to Service	$50 - $110 ($62.91)
				Float Earnings Rate	0.25% (0.25%)				Float Earnings Rate	0.25% (0.25%)

Asset-backed securities: Given the level of market activity for the asset backed securities in the portfolio, the discount rates utilized in the fair value measurement were derived by analyzing current market yields for comparable securities and research reports issued by brokers and dealers in the financial services industry. Adjustments were then made for credit and structural differences between these types of securities. There is an inverse correlation between the discount rate and the fair value measurement. When the discount rate increases, the fair value decreases.

Other significant unobservable inputs to the fair value measurement of the asset backed securities in the portfolio included prospective defaults and recoveries. The cumulative default percentage represents the lifetime defaults assumed. The loss given default percentage represents the percentage of current and projected defaults assumed to be lost. There is an inverse correlation between the default percentages and the fair value measurement. When default percentages increase, the fair value decreases.

Corporate debt: Given the level of market activity for the trust preferred securities in the form of collateralized debt obligations, the discount rate utilized in the fair value measurement were derived by analyzing current market yields for trust preferred securities ~~of individual name issuers in the financial services industry. Adjustments were then made for credit and structural differences~~

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of individual name issuers in the financial services industry. Adjustments were then made for credit and structural differences between these types of securities. There is an inverse correlation between the discount rate and the fair value measurement. When the discount rate increases, the fair value decreases.

Other significant unobservable inputs to the fair value measurement of the collateralized debt obligations included prospective defaults and recoveries. The cumulative default percentage represents the lifetime defaults assumed, excluding currently defaulted collateral and including all performing and currently deferring collateral. As a result, the cumulative default percentage also reflects assumptions of the possibility of currently deferring collateral curing and becoming current. The loss given default percentage represents the percentage of current and projected defaults assumed to be lost. There is an inverse correlation between the cumulative default and loss given default percentages and the fair value measurement. When default percentages increase, the fair value decreases.

Mortgage servicing rights: Given the low level of market activity in the MSR market and the general difficulty in price discovery, even when activity is at historic norms, the discount rate utilized in the fair value measurement was derived by analyzing recent and historical pricing for MSRs. Adjustments were then made for various loan and investor types underlying these MSRs. There is an inverse correlation between the discount rate and the fair value measurement. When the discount rate increases, the fair value decreases.

Other significant unobservable inputs to the fair value measurement of MSR’s include cost to service, an input that is not as simple as taking total costs and dividing by a number of loans. It is a figure informed by marginal cost and pricing for MSRs by competing firms, taking other assumptions into consideration. It is different for different loan types. There is an inverse correlation between the cost to service and the fair value measurement. When the cost assumption increase, the fair value decreases.

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

The Company may also be required, from time to time, to measure certain other assets at fair value on a non-recurring basis in accordance with generally accepted accounting principles; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances. These adjustments to fair value usually result from application of lower-of-cost-or-market accounting or write-downs of individual assets. The following tables detail the assets carried at fair value on a non-recurring basis at ~~March 31,~~June 30, 2017 and December 31, 2016 and indicate the fair value hierarchy of the valuation technique utilized by the Company to determine fair value. There were no liabilities measured at fair value on a non-recurring basis at ~~March 31,~~June 30, 2017 and December 31, 2016.


	Total Fair Value			Quoted Prices in Active Markets for Identical Assets			Other Observable Inputs			Significant Unobservable Inputs		Total Fair Value			Quoted Prices in Active Markets for Identical Assets			Other Observable Inputs			Significant Unobservable Inputs
			(Level 1)			(Level 2)			(Level 3)			Total Fair Value		(Level 1)			(Level 2)			(Level 3)
	Total Fair Value	(In thousands)											(In thousands)
March 31, 2017
June 30, 2017
Impaired loans	$	2,371		$	—		$	—		$	2,371	$	3,611		$	—		$	—		$	3,611
Other real estate owned	1,786			—			—			1,786		1,770			—			—			1,770
Total	$	4,157		$	—		$	—		$	4,157	$	5,381		$	—		$	—		$	5,381
December 31, 2016
Impaired loans	$	5,100		$	—		$	—		$	5,100	$	5,100		$	—		$	—		$	5,100
Other real estate owned	1,890			—			—			1,890		1,890			—			—			1,890
Total	$	6,990		$	—		$	—		$	6,990	$	6,990		$	—		$	—		$	6,990

The following is a description of the valuation methodologies used for certain assets that are recorded at fair value on a non-recurring basis.

Other Real Estate Owned: The Company classifies property acquired through foreclosure or acceptance of deed-in-lieu of foreclosure, as other real estate owned (“OREO”) in its financial statements. Upon foreclosure, the property securing the loan is recorded at fair value as determined by real estate appraisals less the estimated selling expense. Appraisals are based upon observable market data such as comparable sales within the real estate market. Assumptions are also made based on management’s judgment of the appraisals and current real estate market conditions and therefore these assets are classified as non-recurring Level 3 assets in the fair value hierarchy.

Impaired Loans: Accounting standards require that a creditor recognize the impairment of a loan if the present value of expected future cash flows discounted at the loan’s effective interest rate (or, alternatively, the observable market price of the loan or the fair value of the collateral) is less than the recorded investment in the impaired loan. Non-recurring fair value adjustments to collateral dependent loans are recorded, when necessary, to reflect partial write-downs and the specific reserve allocations based

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upon observable market price or current appraised value of the collateral less selling costs and discounts based on management’s

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judgment of current conditions. Based on the significance of management’s judgment, the Company records collateral dependent impaired loans as non-recurring Level 3 fair value measurements.

Losses on assets recorded at fair value on a non-recurring basis are as follows:


	Three Months Ended March 31,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2017			2016
	(In thousands)						(In thousands)
Impaired loans	$	(723	)	$	(185	)	$	(55	)	$	(282	)	$	(778	)	$	(467	)
Other real estate owned	(32		)	(8		)	(138		)	(4		)	(171		)	(4		)
Total	$	(755	)	$	(193	)	$	(193	)	$	(286	)	$	(949	)	$	(471	)

Disclosures about Fair Value of Financial Instruments:

The following methods and assumptions were used by management to estimate the fair value of each class of financial instruments not recorded at fair value for which it is practicable to estimate that value.

Cash and Cash Equivalents: Carrying value is assumed to represent fair value for cash and due from banks and short-term investments, which have original maturities of 90 days or less.

Loans Receivable – net: The fair value of the net loan portfolio is determined by discounting the estimated future cash flows using the prevailing interest rates and appropriate credit and prepayment risk adjustments as of period-end at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. The fair value of non-performing loans is estimated using the Bank’s prior credit experience.

FHLBB stock: FHLBB stock is a non-marketable equity security which is assumed to have a fair value equal to its carrying value due to the fact that it can only be redeemed by the FHLBB at par value.

Accrued Interest Receivable: Carrying value is assumed to represent fair value.

Deposits and Mortgagors’ and Investors’ Escrow Accounts: The fair value of demand, non-interest- bearing checking, savings and certain money market deposits is determined as the amount payable on demand at the reporting date. The fair value of time deposits is estimated by discounting the estimated future cash flows using rates offered for deposits of similar remaining maturities as of period-end.

FHLBB Advances and Other Borrowings: The fair value of borrowed funds is estimated by discounting the future cash flows using market rates for similar borrowings.

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As of ~~March 31,~~June 30, 2017 and December 31, 2016, the carrying value and estimated fair values of the Company’s financial instruments are as described below:


	Carrying Value		Fair Value								Carrying Value		Fair Value
			Level 1		Level 2		Level 3		Total				Level 1		Level 2		Level 3		Total
	(In thousands)										(In thousands)
March 31, 2017
June 30, 2017
Financial assets:
Cash and cash equivalents	$	84,660	$	84,660	$	—	$	—	$	84,660	$	74,851	$	74,851	$	—	$	—	$	74,851
Available-for-sale securities	1,075,729		369		922,881		152,479		1,075,729		1,073,384		364		919,840		153,180		1,073,384
Held-to-maturity securities	13,937		—		14,839		—		14,839		13,792		—		14,753		—		14,753
Loans held for sale	87,031		—		87,031		—		87,031		157,487		—		157,487		—		157,487
Loans receivable-net	4,913,953		—		—		4,909,044		4,909,044		5,024,532		—		—		5,016,315		5,016,315
FHLBB stock	52,707		—		—		52,707		52,707		54,760		—		—		54,760		54,760
Accrued interest receivable	19,126		—		—		19,126		19,126		19,751		—		—		19,751		19,751
Derivative assets	11,679		—		11,679		—		11,679		14,352		—		14,352		—		14,352
Mortgage servicing rights	10,284		—		—		10,284		10,284		10,172		—		—		10,172		10,172
Financial liabilities:
Deposits	4,790,359		—		—		4,789,655		4,789,655		4,993,479		—		—		4,992,375		4,992,375
Mortgagors’ and investors’ escrow accounts	10,925		—		—		10,925		10,925		15,045		—		—		15,045		15,045
FHLBB advances and other borrowings	1,180,053		—		1,181,401		—		1,181,401		990,206		—		1,140,409		—		1,140,409
Derivative liabilities	14,930		—		14,930		—		14,930		18,469		—		18,469		—		18,469

December 31, 2016
Financial assets:
Cash and cash equivalents	$	90,944	$	90,944	$	—	$	—	$	90,944	$	90,944	$	90,944	$	—	$	—	$	90,944
Available-for-sale securities	1,043,411		375		887,564		155,472		1,043,411		1,043,411		375		887,564		155,472		1,043,411
Held-to-maturity securities	14,038		—		14,829		—		14,829		14,038		—		14,829		—		14,829
Loans held for sale	62,517		—		62,517		—		62,517		62,517		—		62,517		—		62,517
Loans receivable-net	4,870,552		—		—		4,895,638		4,895,638		4,870,552		—		—		4,895,638		4,895,638
FHLBB stock	53,476		—		—		53,476		53,476		53,476		—		—		53,476		53,476
Accrued interest receivable	18,771		—		—		18,771		18,771		18,771		—		—		18,771		18,771
Derivative assets	11,734		—		11,734		—		11,734		11,734		—		11,734		—		11,734
Mortgage servicing rights	10,104		—		—		10,104		10,104		10,104		—		—		10,104		10,104
Financial liabilities:
Deposits	4,711,172		—		—		4,711,774		4,711,774		4,711,172		—		—		4,711,774		4,711,774
Mortgagors’ and investors’ escrow accounts	13,354		—		—		13,354		13,354		13,354		—		—		13,354		13,354
FHLBB advances and other borrowings	1,169,619		—		1,167,066		—		1,167,066		1,169,619		—		1,167,066		—		1,167,066
Derivative liabilities	15,040		—		15,040		—		15,040		15,040		—		15,040		—		15,040

Certain financial instruments and all nonfinancial investments are exempt from disclosure requirements. Accordingly, the aggregate fair value of amounts presented above may not necessarily represent the underlying fair value of the Company.



Note 13.	Commitments and Contingencies

Financial Instruments With Off-Balance Sheet Risk

In the normal course of business, the Company is a party to financial instruments with off-balance sheet risk to meet the financing needs of its customers. These financial instruments include commitments to extend credit through issuing standby letters of credit and undisbursed portions of construction loans and involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized on the Consolidated Statements of Condition. The contractual amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

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The contractual amounts of commitments to extend credit represent the amounts of potential accounting loss should the contract be fully drawn upon, the customer defaults and the value of any existing collateral obligations is deemed worthless. The Company uses the same credit policies in making commitments as it does for on-balance sheet instruments. Off-balance sheet financial instruments whose contract amounts represent credit risk are as follows at ~~March 31,~~June 30, 2017 and December 31, 2016:


	March 31, 2017		December 31, 2016		June 30, 2017		December 31, 2016
	(In thousands)				(In thousands)
Commitments to extend credit:
Commitment to grant loans	$	157,022	$	197,070	$	239,545	$	197,070
Undisbursed construction loans	86,253		90,149		138,667		90,149
Undisbursed home equity lines of credit	375,710		364,421		389,821		364,421
Undisbursed commercial lines of credit	372,855		382,018		397,251		382,018
Standby letters of credit	14,364		13,588		15,144		13,588
Unused credit card lines	13,800		12,327		14,505		12,327
Unused checking overdraft lines of credit	1,527		1,465		1,527		1,465
Total	$	1,021,531	$	1,061,038	$	1,196,460	$	1,061,038

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Since these commitments could expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral held varies but may include residential and commercial property, accounts receivable, inventory, property, plant and equipment, deposits, and securities.

Other Commitments

The Company invests in partnerships, including low income housing tax credit, new markets housing tax credit, and alternative energy tax credit partnerships. The net carrying balance of these investments totaled ~~$34.8~~$34.3 million at ~~March 31,~~June 30, 2017 and is included in other assets in the consolidated statement of condition. At ~~March 31,~~June 30, 2017, the Company was contractually committed under these limited partnership agreements to make additional capital contributions of ~~$12.8~~$18.4 million, which constitutes our maximum potential obligation to these partnerships.

Legal Matters

The Company is involved in various legal proceedings that have arisen in the normal course of business. The Company is not involved in any legal proceedings deemed to be material as of ~~March 31,~~June 30, 2017.



Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Certain statements contained in this document that are not historical facts may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (referred to as the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (referred to as the Securities Exchange Act), and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. You can identify these statements from the use of the words “may,” “will,” “should,” “could,” “would,” “plan,” “potential,” “estimate,” “project,” “believe,” “intend,” “anticipate,” “expect,” “target” and similar expressions. These forward-looking statements are subject to significant risks, assumptions and uncertainties, including among other things, changes in general economic and business conditions, increased competitive pressures, changes in the interest rate environment, legislative and regulatory change, changes in the financial markets, and other risks and uncertainties disclosed from time to time in documents that United Financial Bancorp files with the Securities and Exchange Commission, including the Annual Report on Form 10-K for the fiscal year ended December 31, 2016 and the Risk Factors in Item 1A of this report. Because of these and other uncertainties, United’s actual results, performance or achievements, or industry results, may be materially different from the results indicated by these forward-looking statements. In addition, United’s past results of operations do not necessarily indicate United’s combined future results. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. Except as required by applicable law or regulation,

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management undertakes no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD ~~& A”~~&A”) is intended to help the reader understand the Company’s operations and present business environment. Management believes accuracy, transparency and clarity are the primary goals of successful financial reporting. Management remains committed to transparency in the Company’s financial reporting, providing the Company’s stockholders with informative financial disclosures and presenting an accurate view of the Company’s financial disclosures, financial position and operating results.

The MD ~~& A~~&A is provided as a supplement to—and should be read in conjunction with—the Unaudited Consolidated Financial Statements and the accompanying notes thereto contained in Part I, Item 1, of this report as well as the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. The following sections are included in the MD ~~& A:~~&A:

Business – a general description of the Company’s business, objectives and regulatory considerations.

Critical Accounting Estimates – a discussion of accounting estimates that require critical judgments and estimates.

Operating Results – an analysis of the Company’s consolidated results of operations for the periods presented in the Unaudited Consolidated Financial Statements.

Comparison of Financial Liquidity and Capital Resources – an overview of financial condition and market interest rate risk.

Business

General

By assets, United Financial Bancorp, Inc. is the third largest publicly traded banking institution headquartered in Connecticut with consolidated assets of ~~$6.70~~$6.88 billion and stockholders’ equity of ~~$666.0~~$679.5 million at ~~March 31,~~June 30, 2017.

The Company is a commercially-focused financial institution delivering financial services primarily to small- to mid-sized businesses and individuals throughout Connecticut and Massachusetts through 53 banking offices, commercial loan production offices, mortgage loan production offices, 6365 ATMs, telephone banking, mobile banking, and online banking (www.bankatunited.com).

The Company’s vision is to pursue excellence in all things with respect to its customers, employees, shareholders and communities. This pursuit of excellence has helped the Company fulfill the financial needs of its customers while delivering an exceptional banking experience in the market areas that it has served since 1858. The structure of United Bank supports the vision with community banking teams in each market that provide traditional banking products and services to business organizations and individuals, including commercial business loans, commercial and residential real estate loans, consumer loans, financial advisory services and a variety of deposit products.

Our business philosophy is to remain a community-oriented franchise and continue to focus on organic growth supplemented through acquisitions and provide superior customer service to meet the financial needs of the communities in which we operate.

The Company’s results of operations depend primarily on net interest income, which is the difference between the income earned on its loan and securities portfolios and its cost of funds, consisting of the interest paid on deposits and borrowings. Results of operations are also affected by the Company’s provision for loan losses, gains and losses from sales of loans and securities, and non-interest income and expenses. Non-interest income primarily consists of fee income from depositors, mortgage banking activities, loan swap fees and increases in cash surrender value of bank-owned life insurance (“BOLI”). Non-interest expenses consist principally of salaries and employee benefits, occupancy, service bureau fees, core deposit intangible amortization, marketing, professional fees, FDIC insurance assessments, and other operating expenses.

Results of operations are also significantly affected by general economic and competitive conditions and changes in interest rates as well as government policies and actions of regulatory authorities. Future changes in applicable laws, regulations or government policies may materially affect the Company.

The Company’s common stock is traded on the NASDAQ Global Select Market^SM under the ticker symbol “UBNK”.

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Our Objectives

The Company seeks to grow organically and through strategic mergers/acquisitions as well as to continually deliver superior value to its customers, stockholders, employees and communities through achievement of its core operating objectives which are to:

Align earning asset growth with organic capital and low cost core deposit generation to maintain strong capital and liquidity;

Re-mix cash flows into better yielding risk adjusted return on assets with lower funding costs relative to peers;

Invest in people, systems, and technology to grow revenue and improve customer experience while maintaining an attractive cost structure;

Grow operating revenue, maximize operating earnings, grow tangible book value, and pay dividends. Achieve more revenue into non-interest income and core fee income.

Significant factors management reviews to evaluate achievement of the Company’s operating objectives and its operating results and financial condition include, but are not limited to: net income and earnings per share, return on tangible common equity and assets, net interest margin, non-interest income, operating expenses related to total average assets and efficiency ratio, asset quality, loan and deposit growth, capital management, liquidity and interest rate sensitivity levels, customer service standards, market share and peer comparisons.

Regulatory Considerations

The Company and its subsidiaries are subject to numerous examinations by federal and state banking regulators, as well as the Securities and Exchange Commission. Please refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 for additional disclosures with respect to laws and regulations affecting the Company’s businesses.

Critical Accounting Estimates

The accounting policies followed by the Company and its subsidiaries conform with accounting principles generally accepted in the United States of America and with general practices within the banking industry. Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. The Company bases its assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time the Consolidated Financial Statements are prepared. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that the consolidated financial statements are presented fairly and in accordance with GAAP.

Management believes that the most critical accounting policies, which involve the most complex subjective decisions or assessments, relate to the allowance for loan losses, other-than-temporary impairment of investment securities, derivative instruments and hedging activities, goodwill, and income taxes. Management has reviewed these critical accounting estimates and related disclosures with the Audit Committee of the Board of Directors. Additional accounting policies are more fully described in Note 1 in the “Notes to Consolidated Financial Statements” presented in our 2016 Annual Report on Form 10-K. A brief description of the Company’s current policies involving significant judgment follows:

Allowance for Loan Losses

The allowance for loan losses is maintained at a level that management considers adequate to absorb losses in the loan portfolio. Management’s judgment in determining the adequacy of the allowance is inherently subjective and is based on past loan loss experience, known and inherent losses and size of the loan portfolios, an assessment of current economic and real estate market conditions, estimates of the current value of underlying collateral, review of regulatory authority examination reports and other relevant factors.

Although management believes it uses appropriate available information to establish the allowance for loan losses, future additions to the allowance may be necessary if certain future events occur that cause actual results to differ from the assumptions used in making the evaluation.

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Other-than-Temporary Impairment of Securities

The Company maintains a securities portfolio that is classified into two major categories: ~~available for sale~~available-for-sale and ~~held to maturity.~~held-to-maturity. Securities available-for-sale are recorded at estimated fair value with unrealized gains and losses excluded from earnings and reported in other comprehensive income. Held-to-maturity securities are recorded at amortized cost. Management determines the classifications of a security at the time of purchase.

Quarterly, securities with unrealized losses are reviewed as deemed appropriate to assess whether the decline in fair value is temporary or other-than-temporary. The assessment is to determine whether the decline in value is from company-specific events, industry developments, general economic conditions, credit losses on debt or other reasons. Declines in the fair value of available-for-sale securities or ~~held to maturity~~held-to-maturity securities below their cost or amortized cost that are deemed to be other-than-temporary are reflected in earnings for equity securities and for debt securities that have an identified credit loss. Unrealized losses on debt securities with no identified credit loss component are reflected in other comprehensive income.

Derivative Instruments and Hedging Activities

The Company uses derivatives to manage a variety of risks, including risks related to interest rates. Accounting for derivatives as hedges requires that, at inception and over the term of the arrangement, the hedged item and related derivative meet the requirements for hedge accounting. The rules and interpretations related to derivatives accounting are complex. Failure to apply this complex guidance correctly will result in the changes in the fair value of the derivative being reported in earnings.

The Company uses interest rate swaps to manage its interest rate risk. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. The fair values of interest rate swaps are determined using the standard methodology of netting the discounted future fixed cash receipts (or payment) and the expected variable cash payments (or receipts). The variable cash payment (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rates curves.

At ~~March 31,~~June 30, 2017, derivative assets and liabilities were ~~$11.7~~$14.4 million and ~~$14.9~~$18.5 million, respectively. Further information about our use of derivatives is provided in Note 7, “Derivatives and Hedging Activities” in Notes to Unaudited Consolidated Financial Statements in this report.

Goodwill

The Company is required to record certain assets and liabilities it has acquired in a business combination, including identifiable intangible assets such as core deposit intangibles, at fair value, which may involve making estimates based on third-party valuations, such as appraisals or internal valuations based on discounted cash flow analyses or other valuation techniques. The resulting goodwill is evaluated for impairment annually or whenever events or changes in circumstances indicate the carrying value of the goodwill may be impaired.

When goodwill is evaluated for impairment, qualitative factors considered include, but are not limited to, industry and market conditions, overall financial performance, and events affecting the reporting unit. If there are no qualitative factors that indicate goodwill may be impaired, the quantitative analysis is not required. For a quantitative analysis, if the carrying amount exceeds the implied 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.

The carrying value of goodwill at ~~March 31,~~June 30, 2017 was $115.3 million. For further discussion on goodwill see Note 5, “Goodwill and Core Deposit Intangibles” in Notes to Unaudited Consolidated Financial Statements in this report.

Income Taxes

The Company recognizes income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

Significant management judgment is required in determining income tax expense and deferred tax assets and liabilities. Some judgments are subjective and involve estimates and assumptions about matters that are inherently uncertain. In determining the valuation allowance, we use forecasted future operating results, based upon approved business plans, including a review of the eligible carry forward periods, tax planning opportunities and other relevant considerations. Management believes that the accounting estimate related to the valuation allowance is a critical accounting estimate because the 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.

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The reserve for tax contingencies contains uncertainties because management is required to make assumptions and to apply judgment to estimate the exposures associated with our various tax positions. The effective income tax rate is also affected by changes in tax law, entry into new tax jurisdictions, the level of earnings and the results of tax audits.

Operating Results

Executive Overview

Net income of $16.2 million, or $0.32 per diluted share, was recorded for ~~the~~ three months ended ~~March 31,~~June 30, 2017, compared to net income of $9.1 million, or $0.18 per diluted share, for the same period in 2016. Net income for the six months ended June 30, 2017 was ~~$13.7~~$29.9 million, or ~~$0.27~~$0.59 per diluted share, compared to ~~$11.9~~$21.0 million, or ~~$0.24~~$0.42 per diluted share, for the same period in 2016.

Net interest income increased ~~$895,000~~$4.8 million and $5.7 million for the three and six months ended ~~March 31,~~June 30, 2017 compared to the same ~~period~~periods in 2016 due to balance sheet growth which was mostly comprised of strong loan originations and, to a lesser extent, loan portfolio purchases. The Company intends to increase the level of owner-occupied commercial real estate loans while selectively originating investor non-owner occupied commercial real estate loans to generate more favorable risk-adjusted returns and protect the net interest margin in a flat yield curve interest rate environment. Loans held for sale grew due to increased originations in the spring market coupled with the Company’s strategy to hold loans longer before sale in the secondary market. Balance sheet growth was also attributed to the increase in investment securities as the Company began to reinvest security cash flows focused on extending portfolio duration, primarily in mortgage-backed securities and collateralized loan obligation securities. Total interest and dividend income increased ~~$1.6~~$6.9 million and $8.5 million for the three and six months ended ~~March 31,~~June 30, 2017 compared to the same periods in 2016. ~~This increase was~~These increases were partially offset by ~~an increase~~increases in interest expense of ~~$697,000~~$2.1 million and $2.8 million compared to the same ~~period~~periods in 2016. The Company’s tax-equivalent net interest margin for the three and six months ended ~~March 31,~~June 30, 2017 was 3.04% and 3.03%, ~~a decrease~~respectively, an increase of ~~six~~13 basis points and five basis points, respectively, over the same ~~period~~periods in 2016. The margin was adversely impacted by $1.1 million in the current period due to the amortization and accretion of fair value adjustments on loans, deposits and borrowings compared to a positive impact in the prior year period of $296,000.

Non-interest income increased ~~$1.8~~$2.9 million and $4.7 million to ~~$8.5~~$9.5 million and $18.0 million for the three and six months ended ~~March 31,~~June 30, 2017, respectively, compared to ~~$6.7 million for~~ the same ~~period~~periods in 2016. ~~All non-interest income categories experienced~~The increases ~~except for gain on sales of securities which decreased $995,000 from the prior year period. The~~in both periods were due primarily to an increase in ~~non-interest income was mostly~~service charges and fees as a result of increased loan swap fee income, as well as increased revenue generated from the Company’s investment advisory subsidiary. The increases, to a lesser extent, were also due to the Company recording lower impairment charges on its partnership investments, as well as an increase in service charges and fees as the Company’s investment advisory subsidiary generated increased revenue period over period. The decrease in gains recorded on sales of securities was due to a strategy implemented in the prior year period which allowed the Company to pay off higher costing FHLBB advances.investments.

Non-interest expense increased ~~$932,000~~$298,000 to $35.0 million for the three months ended ~~March 31,~~June 30, 2017, compared to $34.7 million for the same period in 2016. The largest ~~increases~~increase in non-interest expense for the three ~~month~~months ended June 30, 2017 was in other expenses, due to increased expenses related to computer software and maintenance as a result of technology investments, increased loan swap fees as the Company entered into more swaps in the three months ended June 30, 2017 versus the same period ~~ended March 31, 2017~~in 2016, and an increase in the provision for off balance sheet items due to an increase in total loan commitments. These increases were offset by decreases in salaries and employee benefits due to severance payments made in the prior year period and ~~occupancy~~decreased commissions and ~~equipment.~~incentives on product sales, decreases in service bureau fees due to the implementation of chip-enabled cards in the prior year period, and decreases in FDIC insurance assessments as a result of decreases in the assessment rate. Non-interest expense increased $1.2 million to $69.7 million for the six months ended June 30, 2017, compared to $68.4 million for the same period in 2016. The biggest driver of the increase in the six month period of 2017 was salaries and benefits ~~is due primarily to the robust human capital investments in information technology staffing and project management, and the increase in occupancy and equipment is largely~~as a result of increased bonus expense driven by ~~weather~~the Company’s financial results and reaching certain corporate goals, as well as higher restricted stock expense related ~~expenses as the Northeast dealt with several snow storms~~to awards granted in ~~the first quarter of 2017. These~~November 2016. The increases in non-interest expense were ~~partially~~ offset primarily by a decrease in FHLBB prepayment ~~penalties. FHLBB prepayment~~ penalties, ~~were incurred~~as the Company did not record any penalties in the six months ended June 30, 2017 compared to the previous year period as a result of the ~~first quarter 2016~~Company’s implementation of the investment portfolio optimization ~~strategy which allowed the Company to pay off higher costing FHLBB advances.~~strategy.

The asset quality of our loan portfolio has remained strong. At ~~March 31,~~June 30, 2017 and December 31, 2016, the allowance for loan losses to total loans ratio was ~~0.88%~~0.89% and 0.87%, and the allowance for loan losses to non-performing loans ratio was ~~125.05%~~138.55% and 125.64%, respectively. The ratio of non-performing loans to total loans was ~~0.70%~~0.64% and 0.69% at ~~March 31,~~June 30, 2017 and December 31, 2016, respectively. A provision for loan losses of $2.3 million and $4.6 million was recorded for the three and six months ended ~~March 31,~~June 30, 2017, compared to ~~$2.7~~$3.6 million and $6.3 million for the same prior year ~~period,~~periods, reflecting the ongoing assessment of asset quality measures including the estimated exposure on impaired loans and organic loan growth.

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The following table presents selected financial data and ratios:


Selected Financial Data		At or For the Three Months Ended March 31,						At or For the Three Months Ended June 30,						At or For the Six Months Ended June 30,
		2017			2016			2017			2016			2017			2016
	(Dollars in thousands, except share data)							(Dollars in thousands, except share data)
Share Data:
Basic net income per share		$	0.27		$	0.24		$	0.32		$	0.18		$	0.60		$	0.42
Diluted net income per share		0.27			0.24			0.32			0.18			0.59			0.42
Dividends declared per share		0.12			0.12			0.12			0.12			0.24			0.24
Key Statistics:
Total revenue		$	52,802		$	50,129		$	55,804		$	48,028		$	108,606		$	98,157
Total expense		34,695			33,763			34,979			34,681			69,674			68,444
Key Ratios (annualized):
Return on average assets		0.83		%	0.76		%	0.96		%	0.57		%	0.90		%	0.66		%
Return on average equity		8.35		%	7.59		%	9.66		%	5.71		%	9.01		%	6.64		%
Tax-equivalent net interest margin		3.03		%	3.09		%	3.04		%	2.91		%	3.03		%	2.98		%
Non-interest expense to average assets		2.11		%	2.15		%	2.06		%	2.19		%	2.09		%	2.17		%
Cost of interest-bearing deposits		0.68		%	0.66		%	0.73		%	0.66		%	0.70		%	0.66		%
Non-performing Assets:
Total non-accrual loans, excluding troubled debt restructures		$	26,376		$	29,285		$	25,048		$	32,310		$	25,048		$	32,310
Troubled debt restructures - non-accruing		8,252			7,143			7,475			6,713			7,475			6,713
Total non-performing loans		34,628			36,428			32,523			39,023			32,523			39,023
Other real estate owned		1,786			659			1,770			702			1,770			702
Total non-performing assets		$	36,414		$	37,087		$	34,293		$	39,725		$	34,293		$	39,725
Asset Quality Ratios:
Non-performing loans to total loans		0.70		%	0.78		%	0.64		%	0.82		%	0.64		%	0.82		%
Non-performing assets to total assets		0.54		%	0.59		%	0.50		%	0.62		%	0.50		%	0.62		%
Allowance for loan losses to non-performing loans		125.05		%	97.45		%	138.55		%	97.28		%	138.55		%	97.28		%
Allowance for loan losses to total loans		0.88		%	0.76		%	0.89		%	0.80		%	0.89		%	0.80		%
Non-GAAP Ratio:
Efficiency ratio (1)		63.95		%	63.00		%	59.49		%	65.41		%	61.64		%	64.23		%


(1)	Calculations for this non-GAAP metric are provided in the following Non-GAAP Financial Measures section

Non-GAAP Financial Measures

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.

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The following is a calculation of our efficiency ratio for the three and six months ended ~~March 31,~~June 30, 2017 and 2016:


	For the Three Months Ended March 31,						For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2017			2016			2017			2016			2017			2016
Efficiency Ratio:
Non-Interest Expense (GAAP)	$	34,695		$	33,763		$	34,979		$	34,681		$	69,674		$	68,444
Non-GAAP adjustments:
Other real estate owned expense	(91		)	(35		)	(305		)	(63		)	(396		)	(98		)
Effect of position eliminations							—			(1,403		)	—			(1,403		)
FHLBB prepayment penalties	—			(1,454		)	—			—			—			(1,454		)
Non-Interest Expense for Efficiency Ratio (non-GAAP)	$	34,604		$	32,274		$	34,674		$	33,215		$	69,278		$	65,489

Net Interest Income (GAAP)	$	44,297		$	43,402		$	46,328		$	41,496		$	90,625		$	84,898
Non-GAAP adjustments:
Tax equivalent adjustment for tax-exempt loans and investment securities	1,693			1,616			1,943			1,616			3,636			3,181

Non-Interest Income (GAAP)	8,505			6,727			9,476			6,532			17,981			13,259
Non-GAAP adjustments:
Net gain on sales of securities	(457		)	(1,452		)	(95		)	(367		)	(552		)	(1,819		)
Net loss on limited partnership investments	80			936			638			1,504			718			2,440
BOLI claim benefit	(8		)	—			—			—			(8		)	—
Total Revenue for Efficiency Ratio (non-GAAP)	$	54,110		$	51,229		$	58,290		$	50,781		$	112,400		$	101,959

Efficiency Ratio (Non-Interest Expense for Efficiency Ratio (non-GAAP)/Total Revenue for Efficiency Ratio (non-GAAP))	63.95		%	63.00		%	59.49		%	65.41		%	61.64		%	64.23		%

Average Balances, Interest, Average Yields\Cost and Rate\Volume Analysis

The tables below sets forth average balance sheets, average yields and costs, and certain other information for the periods indicated. A tax-equivalent yield adjustment was made for the three and six months ended ~~March 31,~~June 30, 2017 and 2016. All average balances are daily average balances. Loans held for sale and non-accrual loans are included in the computation of interest-earning average balances, with non-accrual loans carrying a zero yield. The yields set forth ~~above~~below include the effect of deferred costs, discounts and premiums that are amortized or accreted to interest income or expense.

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Average Balance Sheets for the Three Months Ended ~~March 31,~~June 30, 2017 and 2016:


	Three Months Ended March 31,														Three Months Ended June 30,
	2017							2016							2017							2016
	Average Balance			Interest and Dividends		Annualized Yield/Cost		Average Balance			Interest and Dividends		Annualized Yield/Cost		Average Balance			Interest and Dividends		Annualized Yield/Cost		Average Balance			Interest and Dividends		Annualized Yield/Cost
	(Dollars in thousands)														(Dollars in thousands)
Interest-earning assets:
Residential real estate loans	$	1,235,065		$	10,223	3.31	%	$	1,207,005		$	10,057	3.33	%	$	1,297,558		$	10,839	3.34	%	$	1,199,406		$	9,725	3.24	%
Commercial real estate loans	2,098,474			20,726		4.01		2,010,589			21,082		4.22		2,153,938			21,837		4.01		2,028,659			20,910		4.08
Construction loans	145,486			1,564		4.36		171,268			2,023		4.75		128,730			1,396		4.29		164,716			1,647		3.96
Commercial business loans	730,443			6,720		3.73		607,331			6,129		4.06		780,553			7,628		3.87		636,986			5,533		3.44
Home equity loans	523,335			5,222		3.99		432,208			3,712		3.44		541,017			5,737		4.25		445,391			3,588		3.24
Other consumer loans	212,283			2,611		4.92		228,657			2,975		5.20		230,419			2,907		5.06		218,348			2,671		4.92
Total loans (1)	4,945,086			47,066		3.84		4,657,058			45,978		3.96		5,132,215			50,344		3.90		4,693,506			44,074		3.73
Securities	1,123,083			9,692		3.45		1,134,723			9,139		3.22
Investment securities															1,099,011			9,577		3.48		1,095,937			8,617		3.14
Federal Home Loan Bank stock															54,151			534		3.95		55,989			479		3.43
Other earning assets	45,196			101		0.89		57,736			73		0.51		19,472			50		1.03		42,327			67		0.64
Total interest-earning assets	6,113,365			56,859		3.75		5,849,517			55,190		3.79		6,304,849			60,505		3.82		5,887,759			53,237		3.60
Allowance for loan losses	(43,625		)					(35,134		)					(44,888		)					(36,357		)
Non-interest-earning assets	514,403							472,379							520,375							474,943
Total assets	$	6,584,143						$	6,286,762						$	6,780,336						$	6,326,345
Interest-bearing liabilities:
NOW and money market accounts	$	1,843,458		2,196		0.48		$	1,573,554		1,783		0.46		$	1,929,917		2,808		0.58		$	1,541,058		1,666		0.43
Saving deposits (2)	528,657			77		0.06		519,264			74		0.06		541,867			80		0.06		537,276			79		0.06
Time deposits	1,713,062			4,546		1.08		1,747,654			4,409		1.01		1,715,436			4,715		1.10		1,783,687			4,637		1.05
Total interest-bearing deposits	4,085,177			6,819		0.68		3,840,472			6,266		0.66		4,187,220			7,603		0.73		3,862,021			6,382		0.66
Advances from the Federal Home Loan Bank	980,524			2,670		1.10		956,819			2,481		1.04		1,028,835			3,152		1.21		985,424			2,369		0.95
Other borrowings	126,001			1,380		4.44		150,387			1,425		3.81		154,780			1,479		3.78		121,587			1,374		4.47
Total interest-bearing liabilities	5,191,702			10,869		0.85	%	4,947,678			10,172		0.83	%	5,370,835			12,234		0.91	%	4,969,032			10,125		0.81	%
Non-interest-bearing deposits	668,823							635,552							670,244							641,107
Other liabilities	65,863							76,472							68,731							81,839
Total liabilities	5,926,388							5,659,702							6,109,810							5,691,978
Stockholders’ equity	657,755							627,060							670,526							634,367
Total liabilities and stockholders’ equity	$	6,584,143						$	6,286,762						$	6,780,336						$	6,326,345
Net interest-earning assets (2)	$	921,663						$	901,839
Net interest-earning assets (3)															$	934,014						$	918,727
Tax-equivalent net interest income				45,990							45,018							48,271							43,112
Tax-equivalent net interest rate spread (3)						2.90	%						2.96	%
Tax-equivalent net interest margin (4)						3.03	%						3.09	%
Tax-equivalent net interest rate spread (4)																				2.91	%						2.79	%
Tax-equivalent net interest margin (5)																				3.04	%						2.91	%
Average interest-earning assets to average interest-bearing liabilities						117.75	%						118.23	%						117.39	%						118.49	%
Less tax-equivalent adjustment				1,693							1,616							1,943							1,616
Net interest income				$	44,297						$	43,402
																		$	46,328						$	41,496


(1)	Total loans includes loans held for sale and nonperforming loans.


(2)	Includes mortgagors’ and investors’ escrow accounts.


(3)	Tax-equivalent net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.


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


(5)	Tax-equivalent net interest rate margin represents tax-equivalent net interest income divided by average interest-earning assets.

5054

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Average Balance Sheets for the Six Months Ended June 30, 2017 and 2016:



	Six Months Ended June 30,
	2017							2016
	Average Balance			Interest and Dividends		Annualized Yield/Cost		Average Balance			Interest and Dividends		Annualized Yield/Cost
	(Dollars in thousands)
Interest-earning assets:
Residential real estate loans	$	1,266,484		$	21,062	3.33	%	$	1,203,206		$	19,781	3.29	%
Commercial real estate loans	2,126,358			42,563		3.98		2,019,627			41,953		4.11
Construction loans	137,062			2,960		4.29		167,993			3,668		4.32
Commercial business loans	755,637			14,347		3.78		622,159			11,663		3.71
Home equity loans	532,225			10,959		4.15		438,675			7,299		3.34
Other consumer loans	221,401			5,518		5.03		223,626			5,647		5.08
Total loans (1)	5,039,167			97,409		3.86		4,675,286			90,011		3.83
Investment securities	1,084,548			18,745		3.45		1,089,131			17,367		3.18
Federal Home Loan Bank stock	53,658			1,058		3.94		54,193			858		3.17
Other earning assets	32,263			152		0.95		50,032			140		0.56
Total interest-earning assets	6,209,636			117,364		3.77		5,868,642			108,376		3.67
Allowance for loan losses	(44,260		)					(35,693		)
Non-interest-earning assets	517,403							473,624
Total assets	$	6,682,779						$	6,306,573
Interest-bearing liabilities:
NOW and money market accounts	$	1,886,926		5,004		0.53		$	1,557,318		3,449		0.45
Saving deposits (2)	535,299			158		0.06		528,270			153		0.06
Time deposits	1,714,256			9,260		1.09		1,765,671			9,046		1.03
Total interest-bearing deposits	4,136,481			14,422		0.70		3,851,259			12,648		0.66
Advances from the Federal Home Loan Bank	1,004,813			5,822		1.15		971,121			4,850		0.99
Other borrowings	140,470			2,859		4.05		135,987			2,799		4.07
Total interest-bearing liabilities	5,281,764			23,103		0.88	%	4,958,367			20,297		0.82	%
Non-interest-bearing deposits	669,537							638,317
Other liabilities	67,302							79,171
Total liabilities	6,018,603							5,675,855
Stockholders’ equity	664,176							630,718
Total liabilities and stockholders’ equity	$	6,682,779						$	6,306,573
Net interest-earning assets (2)	$	927,872						$	910,275
Tax-equivalent net interest income				94,261							88,079
Tax-equivalent net interest rate spread (3)						2.89	%						2.85	%
Tax-equivalent net interest margin (4)						3.03	%						2.98	%
Average interest-earning assets to average interest-bearing liabilities						117.57	%						118.36	%
Less tax-equivalent adjustment				3,636							3,181
Net interest income				$	90,625						$	84,898


(1)	Total loans includes loans held for sale and nonperforming loans.


(2)	Includes mortgagors’ and investors’ escrow accounts.


(3)	Tax-equivalent net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.


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


(5)	Tax-equivalent net interest rate margin represents tax-equivalent net interest income divided by average interest-earning assets.

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Rate\Volume Analysis

The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. For purposes of this table, changes attributable to changes in both rate and volume that cannot be segregated have been allocated proportionately based on the changes due to rate and the changes due to volume.


	Three Months Ended March 31, 2017 compared to March 31, 2016									Three Months Ended June 30, 2017 Compared to June 30, 2016									Six Months Ended June 30, 2017 compared to June 30, 2016
	Increase (Decrease) Due to									Increase (Decrease) Due to									Increase (Decrease) Due to
	Volume			Rate			Net			Volume			Rate			Net			Volume			Rate			Net
	(In thousands)									(In thousands)
Interest and dividend income:
Loans receivable	$	2,664		$	(1,576	)	$	1,088		$	4,044		$	2,226		$	6,270		$	6,715		$	683		$	7,398
Securities (1)	(95		)	648			553			8			1,007			1,015			(82		)	1,660			1,578
Other earning assets	(19		)	47			28			(47		)	30			(17		)	(62		)	74			12
Total earning assets	2,550			(881		)	1,669			4,005			3,263			7,268			6,571			2,417			8,988
Interest expense:
NOW and money market accounts	321			92			413			483			659			1,142			805			750			1,555
Savings accounts	1			2			3			1			—			1			2			3			5
Time deposits	(89		)	226			137			(182		)	260			78			(269		)	483			214
Total interest-bearing deposits	233			320			553			302			919			1,221			538			1,236			1,774
FHLBB advances	63			126			189			107			676			783			170			802			972
Other borrowings	(250		)	205			(45		)	334			(229		)	105			90			(30		)	60
Total interest-bearing liabilities	46			651			697			743			1,366			2,109			798			2,008			2,806
Change in tax-equivalent net interest income	$	2,504		$	(1,532	)	$	972		$	3,262		$	1,897		$	5,159		$	5,773		$	409		$	6,182


(1)	Includes FHLBB stock

Comparison of Operating Results for the Three and Six Months Ended ~~March 31,~~June 30, 2017 and 2016

The following discussion provides a summary and comparison of the Company’s operating results for the three and six months ended ~~March 31,~~June 30, 2017 and 2016.

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Net Interest Income

Net interest income is the amount that interest and fees on earning assets (loans and investments) exceeds the cost of funds, interest paid to the Company’s depositors and interest on external borrowings. Net interest margin is the difference between the income on earning assets and the cost of interest-bearing funds as a percentage of average earning assets. Growth in net interest income has resulted from growth in interest-earning assets and liabilities, primarily reflecting organic loan growth and portfolio purchases.

For the three months ended ~~March 31,~~June 30, 2017, ~~tax-equivalent~~tax equivalent net interest income increased ~~$972,000~~$5.2 million from the comparative 2016 period. This was mainly due to the increase in average earning assets of ~~$263.8~~$417.1 million, offset by an increase of $401.8 million in interest-bearing liabilities due to loan growth which was primarily funded by borrowings and deposits. The increase in interest and dividends of $7.3 million was partially offset by the increase in interest expense of $2.1 million. The net interest margin increased 13 basis points, the yield on interest-earning assets increased 22 basis points, and the cost of interest-bearing liabilities increased ten basis points from the same period in 2016.

For the six months ended June 30, 2017, tax-equivalent net interest income increased $6.2 million from the comparative 2016 period. This was mainly due to the increase in average earning assets of $341.0 million outpacing the increase of ~~$244.0~~$323.4 million in interest-bearing liabilities, with the remainder funded by an increase in non-interest bearing deposits of ~~$33.3~~$31.2 million. The increase in interest and dividend income of ~~$1.7~~$9.0 million was partially offset by the increase in interest expense of ~~$697,000.~~$2.8 million. The net interest margin ~~decreased six~~increased five basis points, the yield on average earnings assets ~~decreased four~~increased ten basis points, and the cost of interest-bearing liabilities increased ~~two~~six basis points from the same period in 2016. The fair value adjustments recorded reflect amortization and accretion of credit and interest rate marks on the acquired loans, time deposits and borrowings which resulted in a decrease in net interest income of $1.1 million for the three months ended March 31, 2017 compared to a $296,000 increase in net interest income for the comparable 2016 period.

The increase in the average balances of loans primarily reflects loan growth and portfolio purchases. The average balance of total loans for the three and six months ended ~~March 31,~~June 30, 2017 was ~~$4.95~~$5.13 billion and $5.04 billion, and had an average yield of ~~3.84%.~~3.90% and 3.86%, respectively. The largest increases in the average balances for loans were recorded in commercial business loans, home equity loans and commercial real estate loans. For the three and six months ended ~~March 31,~~June 30, 2017, the average balance of commercial business loans, home equity loans and commercial

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real estate loans ~~totaled $730.4 million, $523.3~~increased $143.6 million and ~~$2.10 billion, an increase of $123.1~~$133.5 million, ~~$91.1~~$95.6 million and ~~$87.9~~$93.6 million, and $125.3 million and $106.7 million, from the respective prior ~~year period, respectively.~~periods in 2016. The loan portfolio has responded favorably to the increase in the Fed Funds rates, LIBOR and Prime rate indices, as 27% of the portfolio is priced off of the LIBOR index, and 15% of the portfolio is priced off of the Prime rate index.

The average balance of investment securities ~~decreased $11.6~~increased $3.1 million, and the average yield earned on these securities increased 2334 basis points ~~respectively,~~ for the three months ended ~~March 31,~~June 30, 2017, compared to the same period in 2016, while the average balance of investment securities decreased $4.6 million, and the average yield increased 27 basis points for the six months ended June 30, 2017 compared to the same period in 2016. The ~~decrease in average balances is primarily due to the Company allowing cash flows to runoff and not being reinvested~~improvement in the portfolio ~~and~~yield was due to a slight duration extension within the ~~increase~~portfolio, coupled by increases in the ~~yield is due to the Company extending duration to earn a higher return.~~3-month LIBOR index.

For the three and six months ended ~~March 31,~~June 30, 2017 compared to the same ~~period~~periods in 2016, the average balance of total interest-bearing deposits increased ~~$244.7~~$325.2 million and $285.2 million, while the average cost was limited to a ~~two~~seven and four basis point ~~increase.~~increase, respectively. These increases were primarily due to deposit growth in all categories except for time deposits and the Company’s continued focus to grow low cost deposits. FHLBB advances increased ~~$23.7~~$43.4 million and $33.7 million while the average cost increased 26 and 16 basis points for the three and six ~~basis points. Average other borrowings decreased $24.4 million while~~months ended June 30, 2017, respectively, compared to the ~~average cost increased 63 basis points. The increase~~same periods in ~~FHLBB advances was~~2016, to help fund new loan growth and ~~loan~~ portfolio purchases. The Company focused on shorter duration advances to align maturities with new accounts, however, overnight advance and short term rates were elevated due to recent Federal Open Market Committee (“FOMC”) rate increases.

Net interest income is affected by changes in interest rates, loan and deposit pricing strategies, competitive conditions, the volume and mix of interest-earning assets and interest-bearing liabilities as well as the level of non-performing assets. The Company manages the risk of changes in interest rates on its net interest income through an Asset/Liability Management Committee and through related interest rate risk monitoring and management policies.

Provision for Loan Losses

The provision for loan losses is a charge to earnings in an amount sufficient to maintain the allowance for loan losses at a level deemed adequate by the Company. The level of the allowance is a critical accounting estimate, which is subject to uncertainty. Acquired loans are recorded at fair value at the time of acquisition, with no carryover of the allowance for loan losses, which includes adjustments for market interest rates and expected credit losses. Included within the ALL at ~~March 31,~~June 30, 2017 are reserves for acquired loans in accordance with Bank policies.

Management evaluates the adequacy of the allowance for loan losses on a quarterly basis. The adequacy of the loan loss allowance is based on such interrelated factors as the composition of the loan portfolio and its inherent risk characteristics, the level of non-performing loans and charge-offs, both current and historic, local economic and credit conditions, the direction of real estate values, and regulatory guidelines. The provision is charged against earnings in order to maintain an allowance for loan losses that reflects management’s best estimate of probable losses inherent in the loan portfolio at the balance sheet date.

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Management recorded a provision for loan losses of $2.3 million and $4.6 million for the three and six months ended ~~March 31,~~June 30, 2017, compared to ~~$2.7~~$3.6 million and $6.3 million for the same ~~period~~periods of 2016. The primary factors that influenced management’s decision to record the provision was organic growth during the period, migration to covered loans, the on-going assessment of estimated exposure on impaired loans, level of delinquencies, and general economic conditions. Impaired loans totaled ~~$50.5~~$50.2 million at ~~March 31,~~June 30, 2017, compared to $50.1 million at December 31, 2016, an increase of ~~$391,000,~~$73,000, or ~~0.8%~~0.1%, reflecting increases in home equity, investor non-owner occupied commercial real estate, residential real estate, ~~home equity~~ and commercial business ~~nonaccrual~~impaired loans of ~~$828,000, $264,000,~~$1.4 million, $1.1 million, $775,000, and ~~$369,000, respectively, and a decrease~~$437,000, respectively; offset by decreases in construction, other consumer, ~~nonaccrual~~and owner-occupied commercial real estate impaired loans of ~~$963,000.~~$2.1 million. $1.1 million, and $484,000, respectively. Troubled debt restructured (“TDR”) loans totaled ~~$24.1~~$25.1 million at ~~March 31,~~June 30, 2017, compared to ~~$23.4~~$23.3 million at December 31, 2016, an increase of ~~$773,000.~~$1.8 million. At ~~March 31,~~June 30, 2017, the allowance for loan losses totaled ~~$43.3~~$45.1 million, representing ~~0.88%~~0.89% of total loans and ~~125.05%~~138.55% of non-performing loans compared to an allowance for loan losses of $42.8 million, which represented 0.87% of total loans and 125.64% of non-performing loans as of December 31, 2016. As loans move from the acquired loan portfolio to the covered loan portfolio, the ALL is anticipated to increase as a percentage of total loans. There is no carryover of the allowance for loan losses on acquired loans. The repayment of impaired loans is largely dependent upon the sale and value of collateral that may be impacted by current real estate conditions.

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Non-Interest Income

Total non-interest income was ~~$8.5~~$9.5 million and ~~$6.7~~$18.0 million for the three and six months ended ~~March 31,~~June 30, 2017, ~~and 2016,~~ with non-interest income representing ~~16.1%~~17.0% and ~~13.4%~~16.6% of total revenues, respectively. For the three and six months ended June 30, 2016, total non-interest income was $6.5 million and $13.3 million, with non-interest income representing 13.6% and 13.5% of total revenues, respectively. The following is a summary of non-interest income by major category for the three and six months ended ~~March 31,~~June 30, 2017 and 2016:


	For the Three Months Ended March 31,											For the Three Months Ended June 30,											For the Six Months Ended June 30,
	2017			2016			$ Change			% Change		2017			2016			$ Change			% Change		2017			2016			$ Change			% Change
	(Dollars in thousands)											(Dollars in thousands)
Service charges and fees	$	5,418		$	4,594		$	824		17.9	%	$	6,834		$	4,359		$	2,475		56.8	%	$	12,252		$	8,953		$	3,299		36.8	%
Gain on sale of securities, net	457			1,452			(995		)	(68.5	)	95			367			(272		)	(74.1	)	552			1,819			(1,267		)	(69.7	)
Income from mortgage banking activities	1,321			860			461			53.6		1,830			2,331			(501		)	(21.5	)	3,151			3,191			(40		)	(1.3	)
Bank-owned life insurance income	1,207			818			389			47.6		1,149			814			335			41.2		2,356			1,632			724			44.4
Net loss on limited partnership investments	(80		)	(936		)	856			(91.5	)	(638		)	(1,504		)	866			(57.6	)	(718		)	(2,440		)	1,722			(70.6	)
Other income (loss)	182			(61		)	243			398.4
Other income												206			165			41			24.8		388			104			284			(273.1	)
Total non-interest income	$	8,505		$	6,727		$	1,778		26.4	%	$	9,476		$	6,532		$	2,944		45.1	%	$	17,981		$	13,259		$	4,722		35.6	%

Service Charges and Fees: Service charges and fees were ~~$5.4~~$6.8 and $12.3 million for the three and six months ended ~~March 31,~~June 30, 2017, an increase of ~~$824,000~~$2.5 million and $3.3 million from the comparable 2016 ~~period.~~periods, respectively. The most significant increases were recorded in revenue generated by (a) loan swap fee income, (b) the Company’s investment advisory subsidiary, United Northeast Financial Advisors, Inc. (“UNFA”), and ~~(b)~~(c) deposit and service charges for various ~~accounts.~~customer products.

Revenue generated from loan swap fee income increased as a direct result of higher transactional volume. Loan swap fee income is generated as part of the Company’s loan level hedge program that is offered to certain commercial banking customers to facilitate their respective risk management strategies. The ~~increased~~increase in revenue generated by UNFA is due to several ~~factors.~~factors largely associated with enhancements to the business model. The Company continues to successfully acquire proven talent with deep local relationships as well as installing Series 6 representatives in select branches which work alongside our retail employees to ensure a cohesive sales approach to meeting the financial needs of our customers. Additionally, beginning in the first quarter of 2016 the Company shifted its focus to assets under management (“AUM”) for ongoing revenue versus a transactional approach; the result has been more recurring fee revenue driven by increasing AUM versus one-time fees generated by transactions. The deposit fee increases are related to a project undertaken by the Company focused on increasing profitability by implementing a deposit fee structure that is more in line with our competition based on a detailed study. The Company recorded revenue increases in the areas of service charges and fees targeted by the project ~~beginning~~began in July ~~2016. These increases were partially offset~~2016, therefore, the 2016 comparative periods are not impacted by this initiative. There was also increased revenue from NSF fees, primarily due to a ~~decrease in loan swap fee income as a direct result~~higher volume of lower transactional volume. Loan swap fee income is generated as part of the Company’s loan level hedge program that is offered to certain commercial banking customers to facilitate their respective risk management strategies.related transactions.

Gains on Sales of Securities, Net: For the three and six months ended ~~March 31,~~June 30, 2017, the Company recorded ~~$457,000~~$95,000 and $552,000 in net gains on security sales compared to ~~$1.5~~$367,000 and $1.8 million in net gains in the prior year ~~period,~~periods, respectively.

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For the three and six months ended ~~March 31,~~June 30, 2017, the Company recorded lower transactional volume with the activity mainly driven by the sale of shorter-term securities, adding longer duration investments in the portfolio to optimize income as well as improving portfolio ~~efficiency.~~ efficiency from a credit and regulatory capital perspective.

The gains recorded in the three and six months ended ~~March 31,~~June 30, 2016 were a result of an optimization strategy of our investment portfolio in which we took advantage of the shape of the yield curve and sold shorter-term securities and added longer duration investments in the portfolio to optimize income and reduce higher-cost borrowings. The Company then also incurred approximately $1.5 million in prepayment penalty expense from the extinguishment of FHLBB debt as part of the optimization strategy which is recorded as a separate line item in non-interest expense.

Income From Mortgage Banking Activities: The Company recorded ~~an increase~~decreases of ~~$461,000~~$501,000 and $40,000 in income from mortgage banking activities for the three and six months ended ~~March 31,~~June 30, 2017, compared to the same ~~period~~periods in 2016.

The ~~increase~~$501,000 decrease for the three months ended ~~March 31,~~June 30, 2017 was primarily driven by decreases in mortgage pair off fees/costs, gain on sale of loans and losses on derivative loan commitments due to market conditions. These decreases were partially offset by the increase in the value of forward loan sales contracts due to market interest rate changes.

The change in mortgage banking activities for the six months ended June 30, 2017 as compared to the prior year period was flat as the Company recorded a decrease of $40,000 period over period. The decrease was primarily due to decreases in gain on sale of loans as fewer loans were sold in the current period and a ~~$1.1 million improvement~~decrease in derivative loan commitments due to market conditions. These decreases were partially offset by an increase in the fair value recognized in net income for mortgage servicing rights in relation to the prior year due to an increase on long-term rates and ~~a decrease~~an increase in the value of forward loan sales contracts.

~~BOLI~~Bank-Owned Life Insurance (BOLI) Income: For the three and six months ended ~~March 31,~~June 30, 2017, the Company recorded BOLI income of ~~$1.2~~$1.1 million and $2.4 million compared to ~~$818,000~~$814,000 and $1.6 million in the same period in 2016, an increase of ~~$389,000.~~$335,000 and $724,000, respectively. The increase for the three and six months ended ~~March 31,~~June 30, 2017 is mainly due to the purchase of $40.0 million of BOLI late in December 2016.

Net ~~loss~~Loss on ~~limited partnership investments:~~Limited Partnership Investments: The Company has investments in low income housing, ~~tax credit,~~ new markets housing ~~tax credit~~ and alternative energy tax credit partnerships. In March 2017 and March 2016, the Company invested an additional ~~$3.5~~$3.6 million and $12.7 million in an alternative energy tax credit partnerships, respectively.

For the three and six months ended ~~March 31,~~June 30, 2017, the Company recorded net losses of ~~$80,000~~$638,000 and $718,000 on limited partnership investments, compared to net losses of ~~$936,000~~$1.5 million and $2.4 million for the corresponding ~~period~~periods as the Company experienced fewer impairments on its partnership investments in the current period. In conjunction with the losses realized on the tax credit partnerships, the Company recorded an

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offsetting benefit of $2.4 million and ~~$2.6~~$4.8 million for the three and six months ended June 30, 2017 as reflected in the tax ~~provision for~~provision. For the three and six months ended ~~March 31, 2017~~June 30, 2016, the Company recorded an offsetting benefit of $2.6 million and ~~2016, respectively.~~$5.2 million.

Other Income: The Company recorded an increase in other income of ~~$243,000~~$41,000 and $284,000 for the three and six months ended ~~March 31,~~June 30, 2017 compared to the prior year ~~period.~~periods.

For both the three and six months ended ~~March 31,~~June 30, 2017, the ~~$243,000 increase~~increases in other income ~~was~~were primarily due to an increase in ~~the~~ the credit value adjustments on borrower facing loan level hedges further augmented by an increase in miscellaneous income related to mortgage insurance ~~claims.~~claims and an increase on the gain on sale of fixed assets. These increases were partially offset by a decrease in gains on the sale of other real estate owned properties.

Non-Interest Expense

Non-interest expense increased ~~$932,000~~$298,000 to ~~$34.7~~$35.0 million for the three months ended ~~March 31,~~June 30, 2017 and $1.2 million to $69.7 million for the six months ended June 30, 2017.

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For the three months ended ~~March 31,~~June 30, 2017 and 2016, annualized non-interest expense represented ~~2.11%~~2.06% and ~~2.15%~~2.19% of average assets, while annualized non-interest expense represented 2.09% and 2.17% of average assets for the six months ended June 30, 2017 and 2016, respectively. The following table summarizes non-interest expense for the three and six months ended ~~March 31,~~June 30, 2017 and 2016:


	For the Three Months Ended March 31,									For the Three Months Ended June 30,									For the Six Months Ended June 30,
	2017		2016		$ Change			% Change		2017		2016		$ Change			% Change		2017		2016		$ Change			% Change
	(Dollars in thousands)									(Dollars in thousands)
Salaries and employee benefits	$	19,730	$	17,791	$	1,939		10.9	%	$	19,574	$	20,013	$	(439	)	(2.2	)%	$	39,304	$	37,804	$	1,500		4.0	%
Service bureau fees	2,103		2,029		74			3.6		1,943		2,230		(287		)	(12.9	)	4,046		4,259		(213		)	(5.0	)
Occupancy and equipment	4,469		3,900		569			14.6		3,657		3,850		(193		)	(5.0	)	8,126		7,750		376			4.9
Professional fees	1,309		881		428			48.6		952		887		65			7.3		2,261		1,768		493			27.9
Marketing and promotions	712		592		120			20.3		1,237		1,023		214			20.9		1,949		1,615		334			20.7
FDIC insurance assessments	679		939		(260		)	(27.7	)	796		1,042		(246		)	(23.6	)	1,475		1,981		(506		)	(25.5	)
Core deposit intangible amortization	385		433		(48		)	(11.1	)	353		401		(48		)	(12.0	)	738		834		(96		)	(11.5	)
FHLBB prepayment penalties	—		1,454		(1,454		)	100.0		—		—		—			—		—		1,454		(1,454		)	(100.0	)
Other	5,308		5,744		(436		)	(7.6	)	6,467		5,235		1,232			23.5		11,775		10,979		796			7.3
Total non-interest expense	$	34,695	$	33,763	$	932		2.8	%	$	34,979	$	34,681	$	298		0.9	%	$	69,674	$	68,444	$	1,230		1.8	%

Salaries and Employee Benefits: Salaries and employee benefits was ~~$19.7~~$19.6 million for the three months ended ~~March 31,~~June 30, 2017, a decrease of $439,000 from the comparable 2016 period. Salaries and employee benefits was $39.3 million for the six months ended June 30, 2017, an increase of ~~$1.9~~$1.5 million from the comparable 2016 period.

~~For~~The changes for both the three and and six months ended ~~March 31,~~June 30, 2017 ~~the increase~~were primarily due to (a) a decrease in salaries ~~and benefits~~due to severance payments made in the second quarter of ~~$1.9~~2016 of $1.4 million ~~was attributable~~resulting from an organizational realignment to ~~(a) an increase in salaries with~~improve operational efficiency; (b) a ~~greater number of employees mainly reflecting the robust investment in information technology staffing and project management; (b) an increase in~~decrease on commissions and incentives on product sales; and (c) an increase in ~~bonuses~~deferred expenses from originating loans. These decreases were partially offset by increases in (a) bonus expense driven by the Company’s financial results and reaching corporate goals; ~~and (d) an increase in~~(b) restricted stock expense related to stock awards granted in November 2016, increasing the number of unvested shares being ~~expensed.~~expensed; and (c) a greater number of employees mainly reflecting the robust investment in information technology staffing and project management.

Service Bureau Fees: Service bureau fees ~~increased $74,000~~decreased $287,000 for the three months ended ~~March 31,~~June 30, 2017, and $213,000 for the six months ended June 30, 2017, compared to the same ~~period~~periods in 2016. The ~~increases~~decreases for both the three and six months were largely driven by ~~an investment~~additional expense incurred in ~~several efficiency and risk mitigation projects~~the second quarter of 2016 related to implementation of Europay and Mastercard (“EMV”) chip-enabled cards to mitigate potential fraud exposure to the Company’s credit and debit card users. Additionally, during the three months ended June 30, 2017, the Company experienced a decrease in custom work expenses from the Company’s core ~~banking system.~~operating service provider than in the prior year period.

Occupancy and Equipment: For the three months ended ~~March 31,~~June 30, 2017, the Company recorded ~~$4.5~~$3.7 million in occupancy and equipment expense, ~~an increase~~a decrease of ~~$569,000~~$193,000 from the prior year period primarily ~~due to higher expenses related to snow removal, outsourcing of property management services which began in July of 2016 and~~ ~~depreciation on leasehold improvements.~~ ~~These increases were partially offset~~driven by ~~a decrease in rent expense related to~~ a change in the estimate for deferred rent ~~in September 2016 resulting~~and from the Company’s efforts to control expenses over the branch ~~network.~~network, as well as lower expenses related to maintenance contracts related to the upkeep of branch facilities.

For the six months ended June 30, 2017, the $376,000 increase in occupancy and equipment expense was impacted by the outsourcing of property management services which began in July 2016, high snow removal costs incurred in the first quarter of 2017, and depreciation on leasehold improvements, partially offset by the deferred rent change discussed above.

Professional ~~fees~~Fees: Professional fees increased ~~$428,000~~$65,000 for the three months ended ~~March 31,~~June 30, 2017, compared to the same period in 2016. No significant variances in any category were noted between the periods.

Professional fees increased $493,000 for the six months ended June 30, 2017, compared to the same period in 2016. The increases were largely driven by the expenses related to the engagement of consulting services assisting in a project targeted to maximize non-interest income revenue streams and legal services related to tax matters regarding a new partnership investment.

Marketing and Promotions: For the three months ended ~~March 31,~~June 30, 2017, marketing and promotions increased ~~$120,000~~$214,000 to ~~$712,000~~$1.2 million from the same period last year. For the six months ended June 30, 2017, marketing and promotions increased $334,000 to $1.9 million from the same period in the prior year. ~~The increase was~~These increases were primarily attributable to expenses related to digital advertising and marketing as the Company increased ~~it’s~~its utilization of online marketing channels. Those increases were partially offset by a decrease in television and ~~newspaper~~radio advertising expenses.

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FDIC Insurance Assessments: The expense for FDIC insurance assessments decreased ~~$260,000~~$246,000 to ~~$679,000,~~$796,000 for the three months ended ~~March 31,~~June 30, 2017 compared to the 2016 period while the expenses decreased $506,000 to $1.5 million for the six months ended June 30, 2017 compared to the same period in the prior year. The ~~decrease is~~decreases are primarily attributable to a decrease in the assessment rate and the FDIC’s Deposit Insurance Fund reserve ratio exceeding established benchmarks which ~~is partially offset by a higher assessment base used~~became effective in the ~~assessment calculation due to loan growth.~~third quarter of 2016.

Core Deposit Intangible Amortization: The $48,000 and $96,000 decrease in core deposit intangible amortization for the three and six months ended ~~March 31,~~June 30, 2017, respectively, is directly attributable to the amortization method used by the Company. The Company is amortizing ~~the original~~its $10.6 million core deposit intangible ~~of $10.6 million~~established in 2014 over 10 years using the sum-of-the-years-digits method.

FHLBB Prepayment Penalties: The Company did not record any FHLBB prepayment penalties during the three and six months ended ~~March 31, 2017 compared to $1.5 million for the same period in the prior year.~~June 30, 2017. As part of the Company’s investment portfolio optimization strategy implemented in the first quarter of 2016, the Company sold investment securities and recorded gains of $1.5 million and prepaid FHLBB advances with prepayment penalties amounting to $1.5 million.

Other Expenses: For the three and six months ended ~~March 31,~~June 30, 2017, other expenses recorded by the Company were ~~$5.3~~$6.5 million ~~a decrease~~and $11.8 million, an increase of ~~$436,000~~$1.2 million and $796,000 from the comparable 2016 ~~period.~~periods. The ~~decreases~~increases for the three and six months ended ~~March 31,~~June 30, 2017 were ~~primarily~~ driven by ~~higher~~increased expenses related to (a) computer software and maintenance expenses due to technology investments; (b) loan swap fees as the Company entered into more swaps in the ~~prior year~~three and six months ended June 30, 2017; (c) other bank service charges related to promotions on credit cards; and (d) an increase in the provision for off balance sheet items due to the increase in total loan commitments, particularly on commercial products. The increases were partially offset by lower expenses related to (a) sales and use ~~tax as the Company incurred expenses~~taxes associated with a ~~sales and use~~state tax audit; ~~(b) human resource on-boarding expenses related to new hires;~~ and ~~(c)~~(b) mortgage appraisal and credit reports.

Income Tax Provision

The provision for income taxes was ~~$2.1~~$2.3 million and ~~$1.8 million~~$665,000 for the three months ended ~~March 31,~~June 30, 2017 and 2016, and $4.4 million and $2.4 million for the six months ended June 30, 2017 and 2016, respectively. The Company’s effective tax rate for the three months ended ~~March 31,~~June 30, 2017 and 2016 was ~~13.2%~~12.6% and ~~13.0%~~6.8%, respectively. The Company’s effective tax rate for the six months ended June 30, 2017 and 2016 was 12.9% and 10.5%, respectively. The effective tax rate is lower than the statutory rate due to favorable permanent differences such as tax exempt income from municipal securities and BOLI, as well as tax credit ~~benefits and state tax minimization planning.~~benefits. The increase in the tax expense over the prior year ~~period~~periods is primarily due to a higher pre-tax income as compared to the prior year ~~period. Although less than a 0.5% impact on the effective tax rate for the quarter ended March 31, 2017, the~~periods. The Company anticipates the potential for increased periodic volatility in future effective tax rates due to the impact of Accounting Standards Update 2016-09 which applies the tax effect of restricted stock vestings and stock option exercises through the tax rate as discrete items in the period in which the tax event occurs.

The Company continually monitors and evaluates the potential impact of current events and circumstances on the estimates used in the analysis of its income tax positions, and accordingly, the Company’s effective tax rate may fluctuate in the future. The Company evaluates its income tax positions based on tax laws and appropriate regulations and financial reporting considerations, and records adjustments as appropriate. This evaluation takes into consideration the status of current taxing authorities’ examinations of the Company’s tax returns and recent positions taken by the taxing authorities on similar transactions, if any. Accordingly, the results of these examinations may alter the timing or amount of taxable income or deductions taken by the Company.

Financial Condition, Liquidity and Capital Resources

Summary

The Company had total assets of ~~$6.70~~$6.88 billion at ~~March 31,~~June 30, 2017 and $6.60 billion at December 31, 2016, an increase of ~~$97.1~~$276.6 million, or ~~1.5%~~4.2%, primarily due to the increase in net loans of ~~$43.4~~$154.0 million, an increase in available-for-sale securities of ~~$32.3~~$30.0 million, an increase in loans held for sale of ~~$24.5~~$95.0 million, and an increase in other assets of ~~$6.2 million, due in part to a new partnership agreement that the Company entered into the first quarter of 2017.~~$20.4 million. The Company utilized deposit growth to fund the growth in loans and securities.

Total net loans of ~~$4.91~~$5.02 billion, with allowance for loan losses of ~~$43.3~~$45.1 million at ~~March 31,~~June 30, 2017, increased ~~$43.4~~$154.0 million, or ~~0.9%~~3.2%, when compared to total net loans of $4.87 billion, with allowance for loan losses of $42.8 million at December 31, 2016. The increase in loans is due primarily to organic loan growth, as well as the purchased loan portfolios. Net loans increased primarily due to growth in ~~owner-occupied commercial real estate loans,~~ commercial business loans, investor non-owner occupied commercial loans, and ~~residential real estate~~other consumer loans, partially offset by decreases in ~~home equity~~both commercial and residential construction loans ~~commercial construction and investor non-owner occupied commercial real estate~~ balances.

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Total deposits of ~~$4.79~~$4.99 billion at ~~March 31,~~June 30, 2017 increased ~~$79.2~~$282.3 million, or ~~1.7%~~6.0%, when compared to total deposits of $4.71 billion at December 31, 2016. The increase in deposits is mainly due to growth in money market deposits and NOW accounts, offset by a decrease in certificates of deposit, which is reflective of the Company’s strategy to emphasize growth in transactional accounts to drive low-cost core deposit growth. The Company’s gross loan-to-deposit ratio was ~~103.2%~~101.2% at ~~March 31,~~June 30, 2017, compared to 104.0% at December 31, 2016.

At ~~March 31,~~June 30, 2017, total equity of ~~$666.0~~$679.5 million increased ~~$10.1~~$23.6 million when compared to total equity of $655.9 million at December 31, 2016. The change in equity for the period ended ~~March 31,~~June 30, 2017 consisted primarily of year to date net income,

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partially offset by dividends paid to common shareholders, as well as an increase due to the change in market value on available-for-sale securities. At ~~March 31,~~June 30, 2017, the tangible common equity ratio was ~~8.29%~~8.27% compared to 8.25% at December 31, 2016.

See Note 9, “Regulatory Matters” in Notes to Unaudited Consolidated Financial Statements contained in this report for information on the Bank and the Company’s regulatory capital levels and ratios.

Securities

The Company maintains a securities portfolio that is primarily structured to generate interest income, manage interest-rate sensitivity, and provide a source of liquidity for operating needs. The securities portfolio is managed in accordance with regulatory guidelines and established internal corporate investment policies.

The following table sets forth information regarding the amortized cost and fair value of the Company’s investment portfolio at the dates indicated:

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Securities


	March 31, 2017				December 31, 2016				June 30, 2017				December 31, 2016
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)								(In thousands)
Available for sale:
Debt securities:
Government-sponsored residential mortgage-backed securities	$	225,266	$	223,734	$	181,419	$	179,548	$	223,169	$	222,862	$	181,419	$	179,548
Government-sponsored residential collateralized debt obligations	204,406		204,278		184,185		183,260		188,610		188,903		184,185		183,260
Government-sponsored commercial mortgage-backed securities	22,489		22,224		26,949		26,530		25,663		25,568		26,949		26,530
Government-sponsored commercial collateralized debt obligations	142,786		140,561		164,433		162,927		155,798		153,617		164,433		162,927
Asset-backed securities	154,215		156,185		166,336		166,967		149,883		151,596		166,336		166,967
Corporate debt securities	87,969		86,568		76,787		75,015		85,198		84,566		76,787		75,015
Obligations of states and political subdivisions	238,251		231,574		223,733		216,376		239,735		235,226		223,733		216,376
Total debt securities	1,075,382		1,065,124		1,023,842		1,010,623		1,068,056		1,062,338		1,023,842		1,010,623
Marketable equity securities, by sector:
Banks	9,428		10,235		32,174		32,413		9,422		10,682		32,174		32,413
Industrial	109		180		109		167		109		179		109		167
Oil and gas	132		190		131		208		132		185		131		208
Total marketable equity securities	9,669		10,605		32,414		32,788		9,663		11,046		32,414		32,788
Total available-for-sale securities	$	1,085,051	$	1,075,729	$	1,056,256	$	1,043,411	$	1,077,719	$	1,073,384	$	1,056,256	$	1,043,411
Held to maturity:
Debt securities:
Obligations of states and political subdivisions	$	12,311	$	13,052	$	12,321	$	12,940	$	12,301	$	13,123	$	12,321	$	12,940
Government-sponsored residential mortgage-backed securities	1,626		1,787		1,717		1,889		1,491		1,630		1,717		1,889
Total held to maturity securities	$	13,937	$	14,839	$	14,038	$	14,829	$	13,792	$	14,753	$	14,038	$	14,829

During the ~~three~~six months ended ~~March 31,~~June 30, 2017, the available-for-sale securities portfolio increased ~~$32.3~~$30.0 million to ~~$1.08~~$1.07 billion, representing ~~16.1%~~15.6% of total assets at ~~March 31,~~June 30, 2017, from $1.04 billion and 15.8% of total assets at December 31, 2016. The increase is largely reflective of continued maintenance of the Company’s barbell management strategy, with bond purchases focused on maintaining investment portfolio duration and ~~diversification of the corporate and municipal sleeves.~~credit diversification. Portfolio activity during the first ~~quarter~~half of the year primarily stemmed from a bond repositioning into slightly longer agency mortgage securities in order to obtain better duration adjusted returns, some repositioning between security classes in order to obtain more efficient risk weighting and certain repositioning for better credit risk adjusted returns in the corporate and municipal sleeves.

Accounting guidance requires the Company to designate its securities as held to maturity, available for sale, or trading depending on the Company’s intent regarding its investments at the time of purchase. The Company does not currently maintain a portfolio of trading securities. As of ~~March 31,~~June 30, 2017, ~~$1.08~~$1.07 billion, or 98.7% of the portfolio, was classified as available for sale, and ~~$13.9~~$13.8 million of the portfolio was classified as held to maturity.

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The Company held ~~$636.2~~$577.9 million in securities that are in an unrealized loss position at ~~March 31,~~June 30, 2017; ~~$584.5~~$517.4 million of this total had been in an unrealized loss position for less than twelve months with the remaining ~~$51.7~~$60.5 million in an unrealized loss position for twelve months or longer. These securities were evaluated by management and were determined not to be other-than-temporarily impaired. The Company does not have the intent to sell these securities, and it is more-likely-than-not that it will not have to sell the securities before the recovery of their cost basis. To the extent that changes in interest rates, credit spread movements and other factors that influence the fair value of securities continue, the Company may be required to record additional impairment charges for other-than-temporary impairment in future periods. For additional information on the securities portfolio, see Note 3, “Securities” in the Notes to Unaudited Consolidated Financial Statements contained elsewhere in this report.

The Company monitors investment exposures continually, performs credit assessments based on market data available at the time of purchase, and performs ongoing credit due diligence for all collateralized loan obligations, corporate exposures, and municipal securities. The Company’s investment portfolio is regularly monitored for performance enhancements and interest rate risk profiles, with dynamic strategies implemented accordingly.

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The Company has the ability to use the investment portfolio, as well as interest-rate financial instruments within internal policy guidelines, to hedge and manage interest-rate risk as part of its asset/liability strategy. See Note 7, “Derivatives and Hedging Activities,” in the Notes to Unaudited Consolidated Financial Statements contained elsewhere in this report for additional information concerning derivative financial instruments.

Lending Activities

The Company’s wholesale lending team includes bankers, cash management specialists and originations, underwriting and servicing staff allayed against each of our disciplines in wholesale lending which includes commercial real estate, commercial business, business banking, cash management, and a shared national credits desk. Our consumer lending team includes the following disciplines which in nearly all channels drive lending activities: retail branches and retail lending, customer contact center which includes outbound calling, direct sales, correspondent lending, LH-Finance, and United Northeast Financial Advisors (“UNFA”).

The Company’s lending activities have historically been conducted principally in Connecticut and Massachusetts; however, as we seek to enhance shareholder value through favorable risk adjusted returns, we often will lend throughout the Northeast and to a lesser extent certain Mid-Atlantic states and other select states. The Company’s experience in our geographic areas we lend in allow us to look at a wide variety of commercial, mortgage, and consumer loans. Opportunities are initially reviewed to determine if they meet the Company’s credit underwriting guidelines. After successfully passing an initial credit review, we then utilize the Company’s risk adjusted return on capital model to determine pricing and structure that supports, or is accretive to, the Company’s return goals. Our systematic approach is intended to create better risk adjusted returns on capital. Through the Company’s Loan and Funds Management Policies, both approved by the Board of Directors, we set limits on loan size, relationship size, and product concentration for both loans and deposits. Creating diversified and granular loan and deposit portfolios is how we diversify risk and create improved return on risk adjusted capital.

The Company can originate, purchase, and sell commercial loans, commercial real estate loans, residential and commercial construction loans, residential real estate loans collateralized by one-to-four family residences, home equity lines of credit and fixed rate loans, marine floor plan loans and other consumer loans.

The Company’s approach to lending is influenced in large part by its risk adjusted return models. With the high level of competition for high quality earning assets, pricing is often at levels that are not accretive to the Company’s aspirational equity return metrics. The Company utilizes a web-based risk adjusted return model that includes inputs such as internal risk ratings, the marginal cost of funding the origination, contractual loan characteristics such as interest rate and term, and origination and servicing costs. This model allows the Company to understand the life-of-loan impact of the origination, leading to proactive and informed decision making that results in the origination of loans that support the Company’s aspirational return metrics. We seek to acquire, develop, and preserve high quality relationships with customers, prospects, and centers of influence that support our return goals and compensate our commercial bankers and branch management for improving returns on equity for their respective areas of responsibility.

Periodically, the Company will purchase loans to enhance geographical diversification, enhance returns, and gain exposure to loan types that we are unwilling to make infrastructure investments in to originate ourselves. Loans purchased by the Company are underwritten by us, are generally serviced by others (“SBO”), and undergo a robust due diligence process. Management performs a vigorous due diligence exercise on the originator, and visits and observes first hand the servicer and its operational process and controls to ensure that the originator and servicer both meet the standards of the Company. Financial modeling includes reviewing prospective yields, costs associated with purchasing loans, including servicing fees and assumed loss rates to ensure that risk adjusted returns of the target portfolio are accretive to our return goals. The Company has set

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portfolio and capital limits on each of its purchased portfolios and has hired staff to oversee ongoing monitoring of the respective servicer and performance to ensure the portfolio performance is meeting our initial and ongoing expectations. In the event that our expectations are not met, the Company has many remedies at its disposal, including replacing the servicer, ending its relationship with the originator, and selling the entire target portfolio. Contractually, the Company has the ability to cross sell dissimilar products to customers in its purchased portfolios allowing us to develop a relationship using our existing online and mobile channels that support servicing and acquisition of our current and prospective clients without the need for a brick and mortar branch.

The table below displays the balances of the Company’s loan portfolio as of ~~March 31,~~June 30, 2017 and December 31, 2016:

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Loan Portfolio Analysis


	March 31, 2017					December 31, 2016					June 30, 2017					December 31, 2016
	Amount			Percent		Amount			Percent		Amount			Percent		Amount			Percent
	(Dollars in thousands)										(Dollars in thousands)
Commercial real estate loans:
Owner-occupied	$	433,358		8.8	%	$	416,718		8.5	%	$	429,848		8.5	%	$	416,718		8.5	%
Investor non-owner occupied	1,697,414			34.3		1,705,319			34.8		1,761,940			34.9		1,705,319			34.8
Construction	85,533			1.7		98,794			2.0		74,980			1.5		98,794			2.0
Total commercial real estate loans	2,216,305			44.8		2,220,831			45.3		2,266,768			44.9		2,220,831			45.3

Commercial business loans	769,153			15.6		724,557			14.8		792,918			15.7		724,557			14.8

Consumer loans:
Residential real estate	1,167,428			23.6		1,156,227			23.6		1,172,540			23.2		1,156,227			23.6
Home equity	516,325			10.4		536,772			11.0		538,130			10.6		536,772			11.0
Residential construction	49,456			1.0		53,934			1.1		46,117			0.9		53,934			1.1
Other consumer	225,317			4.6		209,393			4.2		237,708			4.7		209,393			4.2
Total consumer loans	1,958,526			39.6		1,956,326			39.9		1,994,495			39.4		1,956,326			39.9

Total loans	4,943,984			100.0	%	4,901,714			100.0	%	5,054,181			100.0	%	4,901,714			100.0	%
Net deferred loan costs and premiums	13,273					11,636					15,413					11,636
Allowance for loan losses	(43,304		)			(42,798		)			(45,062		)			(42,798		)
Loans - net	$	4,913,953				$	4,870,552				$	5,024,532				$	4,870,552

As shown above, gross loans were ~~$4.94~~$5.05 billion, an increase of ~~$42.3~~$152.5 million, or ~~0.9%~~3.1%, at ~~March 31,~~June 30, 2017 from December 31, 2016.

Total commercial real estate loans represent the largest segment of our loan portfolio at ~~44.8%~~44.9% of total loans and ~~decreased $4.5~~increased $45.9 million, or ~~0.2%~~2.1%, to ~~$2.22~~$2.27 billion from December 31, 2016. The commercial real estate loan portfolio is comprised of owner-occupied commercial real estate (“OOCRE”) and investor non-owner occupied commercial real estate (“Investor CRE”), and to a lesser extent, commercial construction. Investor CRE represents the largest segment of the Company’s loan portfolio as of ~~March 31,~~June 30, 2017, comprising ~~34.3%~~34.9% of total loans and OOCRE represents ~~8.8%~~8.5% of the portfolio. The Company plans to continue to increase the relative level of OOCRE while decreasing the relative level of Investor CRE to generate more favorable risk-adjusted returns and enhance net interest margin. Commercial real estate construction loans are made for developing commercial real estate properties such as office complexes, apartment buildings and residential subdivisions. Commercial real estate construction loans totaled ~~$85.5~~$75.0 million at ~~March 31,~~June 30, 2017, approximately ~~$35.3~~$29.9 million of which is residential use and ~~$50.2~~$45.1 million is commercial use, compared to total commercial real estate construction loans of $98.8 million at December 31, 2016, $35.4 million of which was residential use and $63.4 million was commercial use.

Commercial business loans increased $68.4 million to ~~$769.2~~$792.9 million at ~~March 31,~~June 30, 2017 from $724.6 million at December 31, 2016. The commercial division continues to experience momentum in origination activity and has a strong loan pipeline. Mid-sized businesses continue to look to community banks for relationship banking and personalized lending services. Periodically, the Company participates in a shared national credit (“SNC”) program, which engages in the participation and purchase of credits with other “supervised” unaffiliated banks or financial institutions, specifically loan syndications and participations. These loans generate earning assets to increase profitability of the Company and diversify commercial loan portfolios by providing opportunities to

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participate in loans to borrowers in other regions or industries the Company might otherwise have no access. The Company offers both term and revolving commercial loans. Term loans have either fixed or adjustable rates of interest and, generally, terms of between three and seven years and amortize on the same basis. Additionally, two market segments the Company has focused on is franchise and educational banking. The franchise lending practice lends to certain franchisees in support of their development, acquisition and expansion needs. The Company typically offers term loans with maturities between three to eight years with amortization from seven to ten years. These loans generally are on a floating rate basis with spreads slightly higher than the standard commercial business loan spreads. Over the past ~~two years,~~ten quarters, the franchise lending portfolio has increased from $0 to over ~~$60.0~~$56.0 million in loan commitments. The educational banking practice consists of K-12 schools and colleges/universities utilizing both taxable and tax-exempt loan products for campus improvements, expansions and working capital needs. Generally, educational term loans have longer dated maturities that amortize up to 30 years and typically offer the Company a full deposit and cash management relationship. Over the past ~~two years,~~ten quarters, the Company has seen growth in educational commitments of ~~$100.0~~$103.4 million

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and deposit increases of over ~~$29.3~~$32.7 million. Both the franchise and educational lending areas focus on opportunities across New England and certain Mid-Atlantic states.

Residential real estate loans continue to represent a major segment of the Company’s loan portfolio as of ~~March 31,~~June 30, 2017, comprising ~~23.6%~~23.2% of total ~~loans. The~~loans, an increase of ~~$11.2~~$16.3 million from December 31, 2016. The Company had originations of both adjustable and fixed rate mortgages of ~~$134.0~~$320.2 million during the first ~~three~~six months of 2017, reflecting both refinancing activity and loans for new home purchases. The Company currently sells the majority of all originated fixed rate residential real estate loans with terms of 30 years, but will also sell 10, 15, and 20 year loans depending on the circumstances. The mortgage origination activity resulted from low market interest rates and competitive pricing.

The Company also offers home equity loans and home equity lines of credit (“HELOCs”), both of which are secured by owner-occupied one-to-four family residences. Home equity loans are offered with fixed rates of interest and with terms up to 15 years. At ~~March 31,~~June 30, 2017, the home equity portfolio totaled ~~$516.3~~$538.1 million compared to $536.8 million at December 31, 2016. During the ~~three~~six months ended ~~March 31,~~June 30, 2017, the Company ~~did not purchase any~~purchased a HELOC ~~portfolios,~~portfolio totaling $35.0 million, compared to ~~$330.5~~portfolios totaling $148.3 million for the year ended December 31, 2016. The total balance of the HELOC purchased portfolios outstanding at ~~March 31,~~June 30, 2017 and December 31, 2016 was ~~$193.4~~$212.4 million and $208.8 million, respectively. These loans are not serviced by the Company. The purchased HELOC portfolios are secured by second liens. The Company may continue purchasing HELOCs throughout 2017 to maintain its existing ~~exposure, but will not be increasing outstandings in this portfolio.~~exposure.

Residential real estate construction loans are made to individuals for home construction whereby the borrower owns the parcel of land and the funds are advanced in stages until completion. Residential real estate construction loans totaled ~~$49.5~~$46.1 million at ~~March 31,~~June 30, 2017, compared to $53.9 million at December 31, 2016.

Other consumer loans totaled ~~$225.3~~$237.7 million, or ~~4.6%~~4.7%, of ~~our~~the total loan portfolio at ~~March 31,~~June 30, 2017. Other consumer loans generally consist of loans on retail high-end boats and small yachts, home improvement loans, new and used automobiles, loans collateralized by deposit accounts and unsecured personal loans. During December 2015, the Company purchased two consumer loan portfolios totaling $229.2 million which consisted of marine retail loans and home improvement loans. At ~~March 31,~~June 30, 2017 and December 31, 2016, ~~$161.6~~$150.6 million and $168.7 million ~~was~~of these loans were outstanding, respectively. The marine retail loans are collateralized by premium brand boats. The home improvement loans are 90% backed by the U.S. Department of Housing and Urban Development and consist of loans to install energy efficient upgrades to the borrowers’ one-to-four family residences. The Company’s plan seeks to marginally increase the level of consumer loans throughout 2017, given these loan types have favorable rate characteristics that will positively impact the net interest margin along with significant granularity and credit metrics that fit within the superior credit quality of its existing portfolio.

LH-Finance, the Company’s marine lending unit, include purchased and originated retail loans and dealer floorplan loans. The Company’s relationships are limited to well established dealers of global premium brand manufacturers. The Company’s top three manufacturer customers have been in business between 30 and 100 years. The Company has generally secured agreements with premium manufacturers to support dealer floor plan loans which may reduce the Company’s credit exposure to the dealer, despite our underwriting of each respective dealer. We have developed incentive retail pricing programs with the dealers to drive retail dealer flow. Retail loans are generally limited to premium manufacturers with established relationships with the Company which have a vested interest in the secondary market pricing of their respective brand due to the limited inventory available for resale. Consequently, while not contractually committed, manufacturers will often support secondary resale values which can have the effect of reducing losses from non-performing retail marine loans. Retail borrowers generally have very high credit scores, substantial down payments, substantial net worth, personal liquidity, anand excess cash flow. Retail loans have an average life of four years and key markets include Florida, California, and New England.

The Company has employed specific parameters taking into account: geographical considerations; exposure hold levels; qualifying financial partners; and most importantly sound credit quality with strong metrics. A thorough independent analysis of the credit quality of each borrower is made for every transaction whether it is an assignment or participation.

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Asset Quality

The Company’s lending strategy focuses on direct relationship lending within its primary market area as the quality of assets underwritten is an important factor in the successful operation of a financial institution. Non-performing assets, loan delinquency and credit loss levels are considered to be key measures of asset quality. Management strives to maintain asset quality through its underwriting standards, servicing of loans and management of non-performing assets since asset quality is a key factor in the determination of the level of the allowance for loan losses. See Note 4, “Loans Receivable and Allowance for Loan Losses” contained elsewhere in this report for further information concerning the Allowance for Loan Losses.

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The following table details asset quality ratios for the following periods:

Asset Quality Ratios


	At March 31, 2017		At December 31, 2016		At June 30, 2017		At December 31, 2016
Non-performing loans as a percentage of total loans	0.70	%	0.69	%	0.64	%	0.69	%
Non-performing assets as a percentage of total assets	0.54	%	0.54	%	0.50	%	0.54	%
Net charge-offs as a percentage of average loans (1)	0.14	%	0.10	%	0.09	%	0.10	%
Allowance for loan losses as a percentage of total loans	0.88	%	0.87	%	0.89	%	0.87	%
Allowance for loan losses to non-performing loans	125.05	%	125.64	%	138.55	%	125.64	%


(1)	Calculated based on year to date net charge-offs annualized

Non-performing Assets

Generally loans are placed on non-accrual if collection of principal or interest in full is in doubt, if the loan has been restructured as part of a TDR, or if any payment of principal or interest is past due 90 days or more. A loan may be returned to accrual status if it has demonstrated sustained contractual performance for six continuous months or if all principal and interest amounts contractually due are reasonably assured of repayment within a reasonable period. There are, on occasion, circumstances that cause commercial loans to be placed in the 90 days delinquent and accruing category, for example, loans that are considered to be well secured and in the process of collection or renewal. As of ~~March 31,~~June 30, 2017 and December 31, 2016, loans totaling ~~$320,000~~$2.1 million and $750,000, respectively, were greater than 90 days past due and accruing. The loans reported as past due 90 days or more and still accruing represent loans that were evaluated by management and maintained on accrual status based on an evaluation of the borrower. At ~~March 31,~~June 30, 2017 and December 31, 2016, loans reported as past due 90 days or more and still accruing represent loans which carry a U.S. Government guarantee and therefore, ~~the~~all contractual ~~balances~~amounts have been determined to be collectible in full.

The following table details non-performing assets for the periods presented:


	At March 31, 2017				At December 31, 2016				At June 30, 2017				At December 31, 2016
	Amount		%		Amount		%		Amount		%		Amount		%
	(Dollars in thousands)								(Dollars in thousands)
Non-accrual loans:
Owner-occupied commercial real estate	$	2,314	6.4	%	$	2,642	7.3	%	$	2,184	6.4	%	$	2,642	7.3	%
Investor commercial real estate	3,809		10.5		4,016		11.2		3,512		10.2		4,016		11.2
Construction	1,355		3.7		1,701		4.7		287		0.8		1,701		4.7
Commercial business	2,369		6.5		2,000		5.6		2,624		7.7		2,000		5.6
Residential real estate	12,185		33.5		11,357		31.6		11,190		32.6		11,357		31.6
Home equity	4,307		11.8		4,043		11.2		5,211		15.2		4,043		11.2
Other consumer loans	37		0.1		1,000		2.8		40		0.1		1,000		2.8
Total non-accrual loans, excluding troubled debt restructured loans	26,376		72.5	%	26,759		74.4	%	25,048		73.0	%	26,759		74.4	%
Troubled debt restructurings - non-accruing	8,252		22.7		7,304		20.3		7,475		21.8		7,304		20.3
Total non-performing loans	34,628		95.1		34,063		94.7		32,523		94.8		34,063		94.7
Other real estate owned	1,786		4.9		1,890		5.3		1,770		5.2		1,890		5.3
Total non-performing assets	$	36,414	100.0	%	$	35,953	100.0	%	$	34,293	100.0	%	$	35,953	100.0	%

As displayed in the table above, non-performing assets at ~~March 31,~~June 30, 2017 ~~increased~~decreased to ~~$36.4~~$34.3 million compared to $36.0 million at December 31, 2016.

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Non-accruing TDR loans increased by ~~$948,000~~$171,000 since December 31, 2016, primarily due to an increase of ~~$487,000~~$364,000 for residential real estate and home equity TDR loans, an increase in commercial business TDRs of ~~$409,000,~~$509,000, and an increase in investor commercial real estate TDR loans of ~~$406,000,~~$68,000, partially offset by a decrease of $437,000 in construction TDR loans and a decrease of $322,000 in other consumer non-accruing TDR loans. The increase in the residential real estate and home equity categories reflects, in part, an increase in the number of home equity line of credit loans that have reached maturity and converted from interest only to principal and interest payments. Difficulty making these larger payments, combined with a decline in home values related to these loans, is a driver of this increase. Additionally, home equity non-accrual loans increased ~~$264,000~~$1.2 million to ~~$4.3~~$5.2 million at ~~March 31,~~June 30, 2017 due to the increasing number of maturing home equity lines of ~~credit converting from interest only to principal and interest payments.~~credit.

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Residential real estate non-accrual loans ~~increased $828,000~~decreased $167,000 to ~~$12.2~~$11.2 million at ~~March 31,~~June 30, 2017. The Company continues to originate loans with strong credit characteristics and routinely updates non-performing loans in terms of FICO scores and LTV ratios. Through continued heightened account monitoring, collections and workout efforts, the Bank is committed to mortgage solution programs designed to assist homeowners to remain in their homes. As has been its practice historically, the Company does not originate subprime loans.

Other consumer non-accrual loans decreased to ~~$37,000~~$40,000 at ~~March 31,~~June 30, 2017. This decrease represents a decrease in non-accruing marine loans reported at ~~March 31,~~June 30, 2017. The current balance represents one marine loan and two consumer loans which evidenced payments due in excess of 90 days and resulted in the ~~loan~~loans being classified as non-accrual.

At ~~March 31,~~June 30, 2017, commercial real estate non-accrual loans (including owner-occupied and investor non-owner occupied commercial real estate loans) decreased ~~$535,000~~$962,000 and commercial business non-accrual loans increased ~~$369,000.~~$624,000. The movements in these categories was the result of several smaller loans which impacted the totals within the categories.

Non-accrual construction loans decreased ~~$346,000,~~$1.4 million, primarily reflecting ~~seven~~one commercial relationships totaling ~~$1.4 million,~~$287,000, of which ~~all~~ relates to construction for residential subdivisions. At December 31, 2016, nonaccrual construction loans consisted of 11 commercial relationships and totaled $1.7 million.

Troubled Debt Restructuring

Loans are considered restructured in a troubled debt restructuring when the Company has granted concessions to a borrower due to the borrower’s financial condition that it otherwise would not have considered. These concessions include modifications of the terms of the debt such as reduction of the stated interest rate other than normal market rate adjustments, extension of maturity dates, or reduction of principal balance or accrued interest. The decision to restructure a loan, versus aggressively enforcing the collection of the loan, may benefit the Company by increasing the ultimate probability of collection.

TDR loans are classified as accruing or non-accruing based on management’s assessment of the collectability of the loan. Loans which are already on non-accrual status at the time of the restructuring generally remain on non-accrual status for a minimum of six months before management considers such loans for return to accruing TDR status. Accruing restructured loans are placed into non-accrual status if and when the borrower fails to comply with the restructured terms and management deems it unlikely that the borrower will return to a status of compliance in the near term. Once a loan is classified as a TDR it retains that classification for the life of the loan; however, some TDRs may demonstrate acceptable performance allowing the TDR loan to be placed on accruing TDR status. The increase in TDRs is primarily attributable to the addition of larger commercial loans along with increases in residential and home equity TDRs during the period ended ~~March 31,~~June 30, 2017.

The following table provides detail of TDR balances for the periods presented:


	At March 31, 2017		At December 31, 2016		At June 30, 2017		At December 31, 2016
	(In thousands)				(In thousands)
Recorded investment in TDRs:
Accrual status	$	15,873	$	16,048	$	17,660	$	16,048
Non-accrual status	8,252		7,304		7,475		7,304
Total recorded investment	$	24,125	$	23,352	$	25,135	$	23,352

Accruing TDRs performing under modified terms for more than one year	$	10,387	$	10,020	$	7,266	$	10,020
TDR allocated reserves included in the balance of allowance for loan losses	577		714		635		714
Additional funds committed to borrowers in TDR status	7		3		—		3

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The following table provides detail of TDR activity for the periods presented:


	Three Months Ended March 31,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2017			2016
	(In thousands)						(In thousands)
TDRs, beginning of period	$	23,352		$	24,064		$	24,125		$	27,359		$	23,352		$	24,064
New TDR status	1,543			4,012			5,736			605			7,279			3,476
Paydowns/draws on existing TDRs, net	(699		)	(711		)	(4,586		)	(1,579		)	(5,285		)	(1,149		)
Charge-offs post modification	(71		)	(6		)	(140		)	(71		)	(211		)	(77		)
TDRs, end of period	$	24,125		$	27,359		$	25,135		$	26,314		$	25,135		$	26,314

Allowance for Loan Losses

The allowance for loan losses and the reserve for unfunded credit commitments are maintained at a level estimated by management to provide for probable losses inherent within the loan portfolio. Probable losses are estimated based upon a quarterly review of the loan portfolio, which includes historic default and loss experience, specific problem loans, risk rating profile, economic conditions and other pertinent factors which, in management’s judgment, warrant current recognition in the loss estimation process. The Company’s Risk Management Committee meets quarterly to review and conclude on the adequacy of the reserves and to present their recommendation to executive management and the Board of Directors.

Management considers the adequacy of the ALL a critical accounting estimate. The adequacy of the ALL is subject to considerable assumptions and judgment used in its determination. Therefore, actual losses could differ materially from management’s estimate if actual conditions differ significantly from the assumptions utilized. These conditions include economic factors in the Company’s market and nationally, industry trends and concentrations, real estate values and trends, and the financial condition and performance of individual borrowers. While management believes the ALL is adequate as of ~~March 31,~~June 30, 2017, actual results may prove different and the differences could be significant.

The Company’s general practice is to identify problem credits early and recognize full or partial charge-offs as promptly as practicable when it is determined that the collection of loan principal is unlikely. The Company recognized full or partial charge-offs on collateral dependent impaired loans when the collateral is deemed to be insufficient to support the carrying value of the loan. The Company does not recognize a recovery when an updated appraisal indicates a subsequent increase in value.

The Company had an allowance for loan losses of ~~$43.3~~$45.1 million, or ~~0.88%~~0.89%, of total loans at ~~March 31,~~June 30, 2017 as compared to an allowance for loan losses of $42.8 million, or 0.87%, of total loans at December 31, 2016. Management believes that the allowance for loan losses is adequate and consistent with asset quality indicators and that it represents the best estimate of probable losses inherent in the loan portfolio.

The unallocated portion of the ALL represents general valuation allowances that are not allocated to a specific loan portfolio. The unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses and reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating allocated and general reserves in the portfolio. The unallocated portion of the ALL at ~~March 31,~~June 30, 2017 ~~decreased $20,000~~increased $80,000 to ~~$1.4~~$1.5 million compared to December 31, 2016. See Note 4, “Loans Receivable and Allowance for Loan Losses” in the Notes to the Unaudited Consolidated Financial Statements contained in this report for a table providing the activity in the Company’s allowance for loan losses for the three and six months ended ~~March 31,~~June 30, 2017 and 2016.

In addition to the ALL, the Company maintains a reserve for unfunded credit commitments in other liabilities on the Consolidated Statements of Condition. The allowance for credit losses analysis includes consideration of the risks associated with unfunded loan commitments. The reserve calculation includes factors that are consistent with ALL methodology for funded loans. The combination of ALL and unfunded reserves is calculated in a manner to capture the entirety of the underlying business relationship of the customer. The amounts of unfunded commitments and the associated reserves may be subject to fluctuations due to originations, the timing and volume of loan funding, as well as changes in risk ratings. At ~~both March 31,~~June 30, 2017 and December 31, 2016, the reserve for unfunded credit commitments was $1.6 million and $1.4 ~~million.~~million, respectively.

Sources of Funds

The primary source of the Company’s cash flows, for use in lending and meeting its general operational needs, is deposits. Additional sources of funds are from FHLBB advances, reverse repurchase agreements, federal funds lines, loan and mortgage-backed securities repayments, securities sales proceeds and maturities, subordinated debt, and earnings. While scheduled loan and securities repayments are a relatively stable source of funds, loan and investment security prepayments and deposit inflows are influenced by prevailing interest rates and local economic conditions and are inherently uncertain.

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Deposits

The Company offers a wide variety of deposit products to consumer, business and municipal customers. Deposit customers can access their accounts in a variety of ways including branch banking, ATM’s, online banking, mobile banking and telephone banking. Effective advertising, direct mail, well-designed product offerings, customer service and competitive pricing policies have been successful in attracting and retaining deposits. A key strategic objective is to grow the base of checking customers by retaining existing relationships while attracting new customers.

Deposits provide an important source of funding for the Bank as well as an ongoing stream of fee revenue. The Company attempts to control the flow of funds in its deposit accounts according to its need for funds and the cost of alternative sources of funding. A Retail Pricing Committee meets weekly and a Management ALCO meets monthly, to determine pricing and marketing initiatives. Actions of these committees influence the flow of funds primarily by the pricing of deposits, which is affected to a large extent by competitive factors in its market area and asset/liability management strategies.

The following table presents deposits by category as of the dates indicated:


	March 31, 2017		December 31, 2016		June 30, 2017		December 31, 2016
	(In thousands)				(In thousands)
Demand deposits	$	690,516	$	708,050	$	721,917	$	708,050
NOW accounts	537,878		498,672		634,358		498,672
Regular savings and club accounts	529,269		518,820		530,518		518,820
Money market and investment savings	1,380,104		1,222,952
Money market accounts					1,354,381		1,222,952
Total core deposits	3,137,767		2,948,494		3,241,174		2,948,494
Time deposits	1,652,592		1,762,678		1,752,305		1,762,678
Total deposits	$	4,790,359	$	4,711,172	$	4,993,479	$	4,711,172

Deposits totaled ~~$4.79~~$4.99 billion at ~~March 31,~~June 30, 2017, an increase of ~~$79.2~~$282.3 million compared to December 31, 2016. Core deposits increased ~~$189.3~~$292.7 million, or ~~6.4%~~9.9%, from year end due to the Company’s continued strategy to focus on obtaining low cost core deposits.

Time deposits included brokered certificate of deposits of ~~$176.6~~$273.6 million and $215.7 million at ~~March 31,~~June 30, 2017 and December 31, 2016, respectively. The Company utilizes brokered time deposits as part of its overall funding program along with other sources. Excluding out-of-market brokered certificates of deposits, in-market time deposits totaled $1.48 billion and $1.55 billion at ~~March 31,~~June 30, 2017 and December 31, 2016, respectively.

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Borrowings

The Company also uses various types of short-term and long-term borrowings in meeting funding needs. While customer deposits remain the primary source for funding loan originations, management uses short-term and long-term borrowings as a supplementary funding source for loan growth and other liquidity needs when the cost of these funds are favorable compared to alternative funding, including deposits.

The following table presents borrowings by category as of the dates indicated:


	March 31, 2017		December 31, 2016		June 30, 2017		December 31, 2016
	(In thousands)				(In thousands)
FHLBB advances (1)	$	1,008,942	$	1,046,712	$	990,206	$	1,046,712
Subordinated debt (2)	79,775		79,716		79,835		79,716
Wholesale repurchase agreements	70,000		20,000		50,000		20,000
Customer repurchase agreements	17,102		18,897		14,603		18,897
Other	4,234		4,294		4,173		4,294
Total borrowings	$	1,180,053	$	1,169,619	$	1,138,817	$	1,169,619

(1)FHLBB advances include ~~$1.3 million~~$989,000 and $1.7 million of purchase accounting discounts at ~~March 31,~~June 30, 2017 and December 31, 2016, respectively.

(2)Subordinated debt includes $7.7 million of acquired junior subordinated debt, net of mark to market discounts of $2.0

million at both ~~March 31,~~June 30, 2017 and December 31, 2016, and $75.0 million of Subordinated Notes, net of associated deferred costs of ~~$948,000~~$917,000 and $980,000 at ~~March 31,~~June 30, 2017 and December 31, 2016, respectively.

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United Bank is a member of the Federal Home Loan Bank System, which consists of twelve district Federal Home Loan Banks, each subject to the supervision and regulation of the Federal Housing Finance Agency. Members are required to own capital stock in the FHLBB in order for the Bank to access advances and borrowings which are collateralized by certain home mortgages or securities of the U.S. Government and its agencies. The capital stock investment is restricted in that there is no market for it, and it can only be redeemed by the FHLBB.

Total FHLBB advances decreased ~~$37.4~~$55.8 million to ~~$1.01 billion~~$989.2 million at ~~March 31,~~June 30, 2017, exclusive of the purchase accounting mark adjustment on the advances, compared to $1.04 billion at December 31, 2016. At ~~March 31,~~June 30, 2017, ~~$907.6~~$889.2 million of the Company’s ~~$1.01 billion~~$989.2 million outstanding FHLBB advances were at fixed coupons ranging from ~~0.49%~~0.87% to ~~4.49%~~4.39%, with a weighted average cost of ~~1.16%~~1.34%. Additionally, the Company has three advances with the FHLBB totaling $100.0 million that are underlying hedge instruments; the interest is based on the three 3-month LIBOR and adjusts quarterly. The Company also has one Flipper advance with the FHLBB totaling $25.0 million, effective March 18, 2016, with an initial interest rate of 0.05% per annum. The advance repriced to 3-month LIBOR minus 60 basis points on a quarterly basis until March 2017, at which point the advance converted to a fixed rate of 1.62% and is callable at the option of the FHLBB on a quarterly basis. The average cost of funds including these adjustable advances is ~~1.16%~~1.34%. FHLBB borrowings represented ~~15.1%~~14.4% and ~~15.9%~~15.8% of assets at ~~March 31,~~June 30, 2017 and December 31, 2016, respectively.

Borrowings under reverse purchase agreements totaled ~~$70.0~~$50.0 million at ~~March 31,~~June 30, 2017, aan increase of ~~$50.0~~$30.0 million from December 31, 2016. The outstanding borrowings consisted of three individual agreements with remaining terms of ~~three~~two years or less and a weighted-average cost of ~~1.49%~~1.86%. Retail repurchase agreements, which have a term of one day and are backed by the purchasers’ interest in certain U.S. Government or government-sponsored securities, totaled ~~$17.1~~$14.6 million and $18.9 million at ~~March 31,~~June 30, 2017 and December 31, 2016, respectively.

Subordinated debentures totaled $79.8 million at ~~March 31,~~June 30, 2017 and $79.7 million at December 31, 2016.

Liquidity and Capital Resources

Liquidity is the ability to meet cash needs at all times with available cash or by conversion of other assets to cash at a reasonable price and in a timely manner. The Company maintains liquid assets at levels the Company considers adequate to meet its liquidity needs. The Company adjusts its liquidity levels to fund loan commitments, repay its borrowings, fund deposit outflows, pay escrow obligations on all items in the loan portfolio and to fund operations. The Company also adjusts liquidity as appropriate to meet asset and liability management objectives.

The Company’s primary sources of liquidity are deposits, amortization and prepayment of loans, the sale in the secondary market of loans held for sale, maturities and sales of investment securities and other short-term investments, periodic pay downs of mortgage-backed securities, and earnings and funds provided from operations. While scheduled principal repayments on loans are a relatively predictable source of funds, deposit flows and loan prepayments are greatly influenced by market interest rates, economic conditions, and rates offered by our competition. The Company sets the interest rates on our deposits to maintain a desired level of total deposits. In addition, the Company invests excess funds in short-term interest-earning assets, which provide liquidity to meet lending requirements.

A portion of the Company’s liquidity consists of cash and cash equivalents, which are a product of our operating, investing and financing activities. At ~~March 31,~~June 30, 2017, ~~$84.7~~$74.9 million of the Company’s assets were held in cash and cash equivalents compared to $90.9 million at December 31, 2016. The Company’s primary sources of cash are principal repayments on loans, proceeds from the calls and maturities of investment securities, increases in deposit accounts, proceeds from residential loan sales and advances from the FHLBB.

Liquidity management is both a daily and longer-term function of business management. If the Company requires funds beyond its ability to generate them internally, borrowing agreements exist with the FHLBB, which provide an additional source of funds. At ~~March 31,~~June 30, 2017, the Company had ~~$1.01 billion~~$989.2 million in advances from the FHLBB and an additional available borrowing limit of ~~$463.9~~$445.3 million based on collateral requirements of the FHLBB inclusive of the line of credit. In addition, the Bank has relationships with brokered sweep deposit providers with outstanding balances of ~~$356.4~~$361.4 million at ~~March 31,~~June 30, 2017. Internal policies limit wholesale borrowings to 40% of total assets, or ~~$2.68~~$2.75 billion, at ~~March 31,~~June 30, 2017. In addition, the Company has uncommitted federal funds ~~line~~lines of credit with four counterparties totaling $107.5 million at ~~March 31,~~June 30, 2017. No federal funds purchased were outstanding at ~~March 31,~~June 30, 2017.

The Company has established access to the Federal Reserve Bank of Boston’s discount window through a borrower in custody agreement. As of ~~March 31,~~June 30, 2017, the Bank had pledged 27 commercial loans, with outstanding balances totaling ~~$193.9~~$192.3 million. Based on the amount of pledged collateral, the Bank had available liquidity of ~~$141.1~~$143.9 million.

At ~~March 31,~~June 30, 2017, the Company had outstanding commitments to originate loans of ~~$157.0~~$239.5 million and unfunded commitments under construction loans, lines of credit, stand-by letters of credit, unused checking overdraft lines of credit, and unused credit card lines of ~~$864.5~~$956.9 million. At ~~March 31,~~June 30, 2017, time deposits scheduled to mature in less than one year totaled

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~~$1.02~~ $1.27 billion. Based

on prior experience, management believes that a significant portion of such deposits will remain with the Company, although there can be no assurance that this will be the case. In the event a significant portion of its deposits are not retained by the Company, it will have to utilize other funding sources, such as FHLBB advances in order to maintain its level of assets. Alternatively, we would reduce our level of liquid assets, such as our cash and cash equivalents in order to meet funding needs. In addition, the cost of such deposits may be significantly higher if market interest rates are higher or there is an increased amount of competition for deposits in our market area at the time of renewal.

The main sources of liquidity at the parent company level are dividends from United Bank and the ability to obtain funding through capital market issuances, as evidenced by the Company’s issuance of $75.0 million of subordinated notes in September 2014. The main uses of liquidity are payments of dividends to common stockholders, repurchase of United Financial’s common stock, payment of subordinated note interest, and corporate operating expenses. There are certain restrictions on the payment of dividends. See Note 18, “Regulatory Matters” in the Company’s 2016 Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 for further information on dividend restrictions.

The Company and the Bank are subject to various regulatory capital requirements. As of ~~March 31,~~June 30, 2017, the Company and the Bank are categorized as “well-capitalized” under the regulatory framework for prompt corrective action. See Note 9, “Regulatory Matters” in the Notes to the Unaudited Consolidated Financial Statements contained elsewhere in this report for discussion of capital requirements.

The liquidity position of the Company is continuously monitored and adjustments are made to balance between sources and uses of funds as deemed appropriate. Management is not aware of any events that are reasonably likely to have a material adverse effect on the Company’s liquidity, capital resources or operations. In addition, management is not aware of any regulatory recommendations regarding liquidity, which if implemented would have a material adverse effect on the Company. The Company has a detailed liquidity contingency plan which is designed to respond to liquidity concerns in a prompt and comprehensive manner. It is designed to provide early detection of potential problems and details specific actions required to address liquidity stress scenarios.



Item 3.	Quantitative and Qualitative Disclosures about Market Risk

General: The majority of our assets and liabilities are monetary in nature. Consequently, our most significant form of market risk is interest rate risk. Our assets, consisting primarily of mortgage loans, in general have longer contractual maturities than our liabilities, consisting primarily of deposits. As a result, a principal part of our business strategy is to manage interest rate risk and reduce the exposure of our net interest income to changes in market interest rates. Accordingly, our Board of Directors has established a Risk Committee which is responsible for evaluating the interest rate risk inherent in our assets and liabilities, for determining the level of risk that is appropriate given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the Board of Directors. Management monitors the level of interest rate risk on a regular basis and the Risk Committee meets at least quarterly to review our asset/liability policies and interest rate risk position.

We have sought to manage our interest rate risk in order to minimize the exposure of our earnings and capital to changes in interest rates. During the low interest rate environment that has existed in recent years, we have implemented the following strategies to manage our interest rate risk: (i) emphasizing adjustable rate loans including, adjustable rate one-to-four family, commercial and consumer loans, (ii) selling longer-term 1-4 family fixed rate mortgage loans in the secondary market, (iii) reducing and shortening the expected average life of the investment portfolio, ~~and~~ (iv) a forward starting hedge strategy for future dated wholesale funding and (v) a loan level hedging program. These measures should serve to reduce the volatility of our future net interest income in different interest rate environments.

Quantitative Analysis

Income Simulation: Simulation analysis is used to estimate our interest rate risk exposure at a particular point in time. The Company models a static balance sheet when measuring interest rate risk, in which a stable balance sheet is projected throughout the modeling horizon. Under a static approach both the size and mix of the balance sheet remains constant, with maturing loan and deposit balances replaced as “new volumes” within the same loan and deposit category, repricing at the respective scenario’s market rate. This adoption was made in a continued effort to align with regulatory best practices and to highlight the current level of risk in the Company’s positions without the effects of growth assumptions. We utilize the income simulation method to analyze our interest rate sensitivity position to manage the risk associated with interest rate movements. At least quarterly, our Risk Committee of the Board of Directors reviews the potential effect changes in interest rates could have on the repayment or repricing of rate sensitive assets and funding requirements of rate sensitive liabilities. Our most recent simulation uses projected repricing of assets and liabilities at ~~March 31,~~June 30, 2017 and December 31, 2016 on the basis of contractual maturities, anticipated repayments and scheduled rate adjustments. Prepayment rate assumptions as well as deposit characterization assumptions can have a significant

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impact on interest income simulation results. Because of the large percentage of loans and mortgage-backed assets we hold, rising or falling interest rates may have a significant impact on the actual prepayment speeds of our mortgage related assets that may in turn effect our interest rate sensitivity position. When interest rates rise, prepayment speeds slow and the average expected life of our assets would tend to lengthen more than the expected average life of our liabilities and therefore would most likely result in a decrease to our asset sensitive position. As a measure of potential market risk arising from a parallel shock of magnitude to the Company’s net interest income, Management includes a 300 basis point parallel increase in rates in the quarterly simulation results. In order to observe the impact of a slower and gradual rate increase over the ~~12-month period,~~respective 12 and 24-month periods, Management includes a 150 basis point ramp simulation; the simulation ~~which~~ assumes that interest rates increase by 25 basis points every other ~~month.~~month, totaling a 150 basis point increase by month 12 and a 300 basis point increase by month 24. To highlight the net interest income of a falling rate environment, Management includes a 50 basis point parallel decrease in rates.


	Percentage Decrease in Estimated Net Interest Income				Percentage Decrease in Estimated Net Interest Income
	Over 12 Months		Over 12 -24 Months		Over 12 Months		Over 12 -24 Months
300 basis point increase in rates	(1.62	)%	(7.22	)%	(0.79	)%	(6.58	)%
150 basis point ramp in rates	4.20	%	2.78	%	5.47	%	4.05	%
50 basis point decrease in rates	(4.68	)%	(6.26	)%	(3.92	)%	(5.67	)%

The Company’s Asset/Liability policy currently limits projected changes in net interest income based on a matrix of projected total risk-based capital relative to the interest rate change for each twelve month period measured compared to the flat rate scenario. As a result, the higher a level of projected risk-based capital, the higher the limit of projected net interest income volatility the Company will accept. As the level of projected risk-based capital is reduced, the policy requires that net interest income volatility also is reduced, making the limit dynamic relative to the capital level needed to support it. These policy limits are re-evaluated on a periodic basis (not less than annually) and may be modified, as appropriate. Because of the asset-sensitivity of our balance sheet, income is projected to increase if interest rates ~~rise.~~rise on a slow, gradual basis as is expected to occur with Federal Open Market Committee rate increases. Also included in the decreasing rate scenario is the assumption that further declines are reflective of a deeper recession as well as narrower credit spreads from Federal Open Market Committee actions. At ~~March 31,~~June 30, 2017, income at risk (i.e., the change in net interest income) decreased ~~1.62%~~0.79% and decreased ~~4.68%~~3.92% based on a 300 basis point average increase or a 50 basis point average decrease, respectively. When considering the impact of the 150 basis point ramp simulation, income at risk increased ~~4.20%~~5.47% over the 12-month simulation horizon. While we believe the assumptions used are reasonable, there can be no assurance that assumed prepayment rates will approximate actual future mortgage-backed security and loan repayment activity.



Item 4.	Controls and Procedures

Evaluation of Disclosure Controls and Procedures: Our disclosure controls and procedures are designed to ensure that information the Company must disclose in its reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, and reported on a timely basis. Our management has evaluated, with the participation and under the supervision of our chief executive officer (“CEO”) and chief financial officer (“CFO”), the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on this evaluation, our CEO and CFO have concluded that, as of such date, the Company’s disclosure controls and procedures are effective in ensuring that information relating to the Company, including its consolidated subsidiaries, required to be disclosed in reports that it files under the Exchange Act is (1) recorded, processed, summarized and reported within time periods specified in the SEC’s rules and forms, and (2) accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls: During the quarter under report, there was no change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.



Part II.	OTHER INFORMATION



Item 1.	Legal Proceedings



Item 1A.	Risk Factors

There have been no material changes in the Risk Factors previously disclosed in Item 1A of the Company’s annual report on Form 10-K for the period ended December 31, 2016.

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Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information with respect to net purchases made by United Financial Bancorp’s, Inc. of its common stock during the period ended ~~March 31,~~June 30, 2017:

Period Total number
of shares
purchased Average(1)
price paid
per share Total number
of shares
purchased as
part of publicly
announced
plans or programs Maximum number of shares that may yet be purchased under the plan
January 1 - 31, 2017 —
$ —
5,041,915
1,248,536
February 1 - 28, 2017 —
—
5,041,915
1,248,536
March 1 - 31, 2017 80,000
16.40
5,121,915
1,168,536
Total 80,000
$ 16.40
5,121,915
1,168,536



Period	Total number of shares purchased	Average(1) price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Maximum number of shares that may yet be purchased under the plan
April 1 - 30, 2017	—	$	—	5,121,915	1,168,536
May 1 - 31, 2017	—	—		5,121,915	1,168,536
June 1 - 30, 2017	—	—		5,121,915	1,168,536
Total	—	$	—	5,121,915	1,168,536

(1) Includes dealer commission expense to purchase the securities.

On January 26, 2016, the Company’s Board of Directors approved a fourth share repurchase plan authorizing the Company to repurchase up to 2.5% of outstanding shares, or 1,248,536 shares. As of ~~March 31,~~June 30, 2017, there were 1,168,536 maximum shares that may yet be purchased under this publicly announced plan.



Item 3.	Defaults Upon Senior Securities

None.



Item 4.	Mine Safety Disclosures

None.



Item 5.	Other Information

None.



Item 6.



2.1	Amended and Restated Plan of Conversion and Reorganization (incorporated herein by reference to Exhibit 2.1 to the Registration Statement filed on the Form S-1 for Rockville Financial New, Inc. on September 16, 2010)
2.2	Agreement and Plan of Merger by and between Rockville Financial, Inc. and United Financial Bancorp, Inc. (incorporated herein by reference to Exhibit 99.1 to the Current Report on the Company’s Form 8-K filed on November 15, 2013)
3.1	Certificate of Incorporation of United Financial Bancorp, Inc. (incorporated herein by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed on May 1, 2014)
3.1.1	Amendment to Certificate of Incorporation increasing authorized common stock from 60,000,000 shares to 120,000,000 shares (incorporated to Exhibit B in the definitive proxy statement herein by reference)
3.2	The Bylaws, as amended and restated, (incorporated herein by reference to Exhibit 3.2 to the Current Report on the Company’s Form 8-K filed on May 1, 2014)
3.2.1	Amendment to Bylaws (incorporated by reference to Exhibit 3.2.1 of the Company’s Current Report on Form 8-K filed on March 23, 2017)
10.5	United Bank Officer Incentive Compensation Plan (incorporated herein by reference to Exhibit 10.2.3 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2005 filed on March 31, 2006 (File No. 000-52139))
10.6	United Bank Supplemental Executive Retirement Plan as amended and restated effective December 31, 2007 (incorporated herein by reference to Exhibit 10.9 to the Current Report on Form 8-K filed for Rockville Financial, Inc. (now United Financial Bancorp, Inc.) filed on December 18, 2007)
10.9	United Bank Supplemental Executive Retirement Plan as amended and restated effective December 31, 2007 (incorporated herein by reference to Exhibit 10.9 to the Current Report on Form 8-K filed for Rockville Financial, Inc. (now United Financial Bancorp, Inc.) filed on December 18, 2007)

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10.10	United Financial Bancorp, Inc. 2006 Stock Incentive Award Plan (incorporated herein by reference to Appendix B in the Definitive Proxy Statement on Form 14A for Rockville Financial, Inc. (now United Financial Bancorp, Inc.) filed on July 3, 2006 (File No. 000-51239))
10.11.2	Supplemental Executive Retirement Agreement of United Bank for William H.W. Crawford, IV effective December 26, 2012 (incorporated by reference to Exhibit 10.11.2 to the Current Report on the Company’s Form 8-K filed on January 2, 2013)
10.11.4	Employment Agreement with William H.W. Crawford, IV effective on the date of the consummation of the Legacy United Merger (incorporated by reference to Exhibit 10.11.4 to the Company’s Form 8-K filed on November 20, 2013)
10.12	Supplemental Executive Retirement Agreement of United Bank for Mark A. Kucia effective December 6, 2010 (incorporated by reference to Exhibit 10.13 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 filed on March 10, 2011)
10.12.1	Employment Agreement as amended and restated by and among United Financial Bancorp, Inc., United Bank and Mark A. Kucia, effective January 1, 2016 (incorporated herein by reference to Exhibit 10.12.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 filed March 7, 2016)
10.14	Rockville Financial , Inc. 2012 Stock Incentive Award Plan (incorporated herein by reference to Appendix A in the Definitive Proxy Statement on Form 14A for Rockville Financial, Inc. (now United Financial Bancorp, Inc.) filed on April 4, 2012 (File No. 0001193125-12-149948))
10.17	Employment Agreement as amended and restated by and among United Financial Bancorp, Inc., United Bank and Eric R. Newell, effective January 1, 2016 (incorporated herein by reference to Exhibit 10.17 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 filed on March 7, 2016)
10.18	Employment Agreement as amended and restated by and among United Financial Bancorp, Inc., United Bank and David Paulson, effective January 1, 2016 (incorporated herein by reference to Exhibit 10.18 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 filed on March 7, 2016)
10.19	Form of United Financial Bancorp, Inc. Executive Change in Control Severance Plan, effective January 21, 2015 (incorporated herein by reference to Exhibit 10.19 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 filed on March 9, 2015)
10.20	United Financial Bancorp, Inc. 2015 Omnibus Stock Incentive Plan (incorporated herein by reference to Appendix A in the Definitive Proxy Statement on Form 14A for the Company filed September 8, 2015)
10.21	Employment Agreement as amended and restated by and among United Financial Bancorp, Inc., United Bank and Brandon C. Lorey, effective January 1, 2016 (incorporated herein by reference to Exhibit 10.21 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016 filed August 5, 2016)
10.22	Employment Agreement by and among United Financial Bancorp, Inc., United Bank and John J. Smith effective January 19, 2016 (incorporated herein by reference to Exhibit 10.22 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 filed ~~herewith~~May 5, 2017)
14.0	United Financial Bancorp, Inc., United Bank, Standards of Conduct Policy Employees (incorporated herein by reference to Exhibit 14 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 filed on March 9, 2015)
21.0	Subsidiaries of United Financial Bancorp, Inc. and United Bank (incorporated by reference to Exhibit 21.0 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 filed on March 7, 2016)
31.1	Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer filed herewith
31.2	Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer filed herewith
32.0	Section 1350 Certification of the Chief Executive Officer and Chief Financial Officer attached hereto
101.	Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Statements of Condition, (ii) the Consolidated Statements of Net Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows, and (vi) the Notes to Unaudited Consolidated Financial Statements filed herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

United Financial Bancorp, Inc.



By:		/s/ Eric R. Newell
		Eric R. Newell
		EVP, Chief Financial Officer and Treasurer

Date: ~~May 9,~~August 8, 2017

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