United Financial Bancorp, Inc. (the “Company” or “United”) is headquartered in Hartford, Connecticut, and through United Bank (the “Bank”) and various subsidiaries, delivers financial services to individuals, families and businesses primarily throughout Connecticut and Massachusetts through 5458 banking offices, its commercial loan production offices, its mortgage loan production offices, 6672 ATMs, telephone banking, mobile banking and online banking (www.bankatunited.com).

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 Wealth Management, Inc., United Bank Investment Sub, Inc., ~~UCB Securities, Inc. II,~~ UB Properties, LLC, United Financial Realty HC, Inc. and UCB Securities, Inc. II. In addition, the Bank has a real estate investment trust subsidiary, United Financial Business Trust I.I, which is a wholly-owned subsidiary of United Financial Realty HC, Inc.

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, ~~2018~~2019 or any future period. These unaudited interim consolidated financial statements should be read in conjunction with the Company’s ~~2017~~2018 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, ~~2017.~~2018.

The Company is chartered in the state of Connecticut. Connecticut law does not provide for treasury shares, ~~rather~~and 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.

Certain reclassifications have been made in prior periods’ consolidated financial statements to conform to the ~~2018~~2019 presentation. These reclassifications had no impact on the Company’s consolidated financial position, results of operations or net change in cash equivalents.

The preparation of the consolidated interim 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.

The following list identifies ASUs applicable to the Company that have been issued but are not yet effective:

In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit ~~Plans.~~ ~~The Update was issued as a part of FASB’s disclosure project to improve the effectiveness of disclosures in the notes to financial statements.~~Plans. The amendments in this ~~Update~~ASU remove ~~disclosures~~the disclosure requirements that no longer are considered cost beneficial, clarify the specific requirements of disclosures and add disclosure requirements identified as relevant. The amendments in this ~~Update~~ASU are effective for fiscal years ending after December 15, 2020. Early adoption is permitted and amendments should be applied on a retrospective basis to all periods presented. This ASU will affect the Company’s disclosure only and will not have a financial statement impact.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement ~~as a result of a broader disclosure project. The Update amends the~~. This ASU updates disclosure requirements ~~for fair value measurements~~of Accounting Standards Codification (“ASC”) Topic 820 in order to improve the effectiveness of the ~~disclosure. The Update removes and modifies certain disclosure requirements, as well as adds requirements for public business entities. The~~disclosures. This ASU is effective ~~for all entities~~ for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments affecting changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty are to be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments are to be applied retrospectively to all periods presented upon their effective date. An entity is permitted to early adopt any removed or modified disclosures ~~upon issuance of the Update~~ and delay adoption of the additional disclosures until their effective date. This ASU will affect the Company’s disclosures only and will not have a financial statement impact.

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~~FASB’s guidance on the impairment of financial instruments. The ASU adds to 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 GAAP by decreasing the number of credit impairment models that entities use to account for debt instruments. For public business entities that are ~~U.S. Securities and Exchange Commission~~SEC 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~~

Additional updates were issued through ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging (Topic 825), Financial Instruments. This ASU clarifies and improves guidance related to the previously issued standards on credit losses, hedging and recognition and measurement of financial instruments. The amendments provide entities with various measurement alternatives and policy elections related to accounting for credit losses and accrued interest receivable balances. Entities are also able to elect a practical expedient to separately disclose the total amount of accrued interest included in the amortized cost basis as a single balance to meet certain disclosure requirements. The amendments clarify that the estimated allowance for credit losses should include all expected recoveries of financial assets and trade receivables that were previously written off and expected to be written off. The amendments also allow entities to use projections of future interest rate environments when using a discounted cash flow method to measure expected credit losses on variable-rate financial instruments.

In addition, new updates were issued through ASU No. 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief. This amendment allows entities to elect the fair value option on certain financial instruments. On adoption, an entity is allowed to irrevocably elect the fair value option on an instrument-by-instrument basis. This alternative is available for all instruments in the scope of Subtopic 326-20 except for existing held-to-maturity debt securities. If an entity elects the fair value option, the difference between the instrument’s fair value and carrying amount is recognized as a cumulative-effect adjustment.

The Company is evaluating the provisions of ASU No. 2016-13, ASU No. 2019-04 and ASU No. 2019-05, and will closely monitor developments and additional guidance to determine the potential impact on the Company’s ~~Consolidated Financial Statements which~~consolidated financial statements. The ASU is expected to increase loan loss reserves, the amount of which is uncertain at this time. The Company has ~~implemented~~formed a committee led by the Bank’s Chief Credit Officer, which includes the Chief Financial Officer and ~~the~~ Chief Risk Officer, to assist in identifying, implementing and evaluating the impact of the required changes to loan loss estimation models and processes.

The amortized cost, gross unrealized gains, gross unrealized losses and fair value of investment securities classified as available-for-sale ~~and held-to-maturity~~ at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018 are as follows:

At ~~September~~June 30, ~~2018,~~2019, the net unrealized ~~loss~~gain on securities available-for-sale of ~~$38.8~~$5.2 million, net of an income tax benefit of ~~$8.5~~$1.1 million, or ~~$30.3~~$4.1 million, was included in accumulated other comprehensive loss on the unaudited Consolidated Statement of Condition.

~~Effective January 1, 2018, the Company adopted ASU No. 2017-12,~~ ~~Derivatives & Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities,~~ which improves and simplifies the accounting rules around hedge accounting. As allowed by the ASU, upon adoption, the Company transferred its held-to-maturity portfolio to its available-for-sale portfolio.

At ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the Company had securities with a fair value of ~~$485.0~~$365.0 million and ~~$469.4~~$438.8 million, respectively, pledged as derivative collateral, collateral for reverse repurchase borrowings, collateral for municipal deposit exposure, and collateral for FHLBB borrowing capacity.

~~There were no gains realized on sales of available-for-sale securities for the three months ended September 30, 2018.~~ For the three months ended ~~September~~June 30, ~~2017,~~2019 and 2018, gross gains of ~~$235,000~~$468,000 and $71,000, respectively, were realized on the sales of available-for-sale securities. For the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, gross gains of ~~$418,000~~$3.4 million and ~~$2.5 million,~~$418,000, respectively, were realized on the sales of available-for-sale securities. There were gross losses of ~~$58,000~~$331,000 and ~~$77,000~~$9,000 realized on the sale of available-for-sale securities for the three months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively. There were gross losses of ~~$298,000~~$2.5 million and ~~$1.8 million~~$240,000 realized on the sale of available-for-sale securities for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively.

As of ~~September~~June 30, ~~2018,~~2019, 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 ~~September~~June 30, ~~2018,~~2019, the fair value of the obligations of states and political subdivisions portfolio was ~~$239.0~~$87.0 million, with no significant geographic or issuer exposure concentrations. Of the total state and political obligations of ~~$239.0~~$87.0 million, ~~$103.1~~$32.7 million were representative of general obligation bonds, for which ~~$57.0~~$18.1 million are general obligations of political subdivisions of the respective state, rather than general obligations of the state itself.

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 ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017:~~2018:

Of the available-for-sale securities summarized above as of ~~September~~June 30, ~~2018, 131~~2019, 20 securities had unrealized losses equaling ~~2.8%~~0.4% of the amortized cost basis for less than twelve months and ~~117~~46 securities had unrealized losses of ~~5.7%~~1.0% of the amortized cost basis for twelve months or more. As of December 31, ~~2017,~~2018, of the available-for sale securities, 7595 securities had unrealized losses ~~of less than 1.0%~~equaling 2.1% of the amortized cost basis for less than twelve months and ~~100~~155 securities had unrealized losses equaling ~~2.8%~~4.3% of the amortized cost basis for twelve months or more. ~~There was one unrealized loss of $88,000 on a debt security held-to-maturity at December 31, 2017.~~

Based on its detailed quarterly review of the securities portfolio, management believes that no individual unrealized loss as of ~~September~~June 30, ~~2018~~2019 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~~

The following paragraphs outline the Company’s position related to unrealized losses in its investment securities portfolio at ~~September~~June 30, ~~2018.~~2019.

Government-sponsored residential ~~mortgage backed~~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 increase in~~ higher

Asset-backed securities. The unrealized losses on certain securities within the Company’s ~~asset-backed~~asset- backed securities portfolio were largely driven by ~~decreases~~the spread widening of these securities as a response to the market volatility in the ~~weighted average lives~~fourth quarter of 2018, with limited tightening occurring in the first half of 2019, as well as the market viewing floating rate products as less desirable in a ~~number of these securities. Given this, the Company, when possible, avoids high premiums on this asset class.~~downward rate movement environment. 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 relates to securities with no company specific concentration. The unrealized loss was due to an upward shift in interest rates that resulted in a negative impact to the respective bonds’ pricing, relative to the time of purchase.

Obligations of states and political subdivisions. The unrealized loss on obligations of states and political subdivisions relates to several 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, as well as the market prices of certain securities reflecting the likelihood that they will be called at par prior to the maturity date.~~securities.

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

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

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.

At ~~September~~June 30, ~~2018,~~2019, the Company had an allowance for loan losses of ~~$49.9~~$53.2 million, or ~~0.90%~~0.92%, of total loans as compared to an allowance for loan losses of ~~$47.1~~$51.6 million, or ~~0.88%~~0.91%, of total loans at December 31, ~~2017.~~2018. 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.

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

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 12-quarter 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; experience and depth of ~~lending;~~management; changes in weighted average risk 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 covered by the allowance for loan losses. Acquired impaired loans are loans with evidence of deterioration subsequent to acquisition and are considered 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 ~~2018.~~2019.

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 Company 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 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.

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 generally consist of loans on high-end retail boats and small yachts, new and used automobiles, home improvement loans, loans collateralized by deposit accounts and unsecured personal loans. These loans are secured or unsecured and repayment is dependent on the credit quality of the individual borrower.

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.

The Company utilizes a nine-grade internal loan rating system for residential and commercial real estate, construction, commercial business 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”) 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~~the Company’s internal credit department further evaluate the risk rating of the individual loan, with the credit department and Chief Credit Officer having final determination of 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 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.

Core Deposit Intangibles
(In thousands)
Balance at December 31, 2016 $ 5,902
Amortization expense (1,411 )
Balance at December 31, 2017 $ 4,491
Amortization expense (930 )
Balance at September 30, 2018 $ 3,561

Estimated amortization expense for the years ending December 31,
2018 (remaining three months) $ 289
2019 1,026
2020 834
2021 642
2022 449
2023 and thereafter 321
Total remaining $ 3,561

On October 5, 2018, the Company acquired six branches which were accounted for under FASB ASC 805, Business Combinations. In addition to the acquired branches, the Company assumed $109.4 million of branch deposits and ~~2017, respectively.~~$2.3 million of fixed assets. The purchase price of $6.9 million was allocated based on the estimated fair market values of the assets and liabilities acquired.

The Company is a member of the Federal Home Loan Bank of Boston (“FHLBB”). Contractual maturities and weighted-average rates of outstanding advances from the FHLBB as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018 are summarized below:

The total carrying value of FHLBB advances at ~~September~~June 30, ~~2018~~2019 was ~~$812.9~~$652.0 million, which includes a remaining fair value adjustment of ~~$218,000~~$163,000 on acquired advances. At December 31, ~~2017,~~2018, the total carrying value of FHLBB advances was ~~$1.05 billion,~~$797.3 million, with a remaining fair value adjustment of ~~$504,000.~~$183,000.

At ~~September~~June 30, ~~2018,~~2019, the Company had no outstanding advances that are callable by the FHLBB. All advances are collateralized by first and second mortgage loans, as well as investment securities with an estimated eligible collateral value of ~~$1.65~~$2.30 billion and ~~$2.28~~$2.37 billion at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, 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 ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017.~~2018. 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 ~~September~~June 30, ~~2018,~~2019, the Company could borrow immediately an additional ~~$531.6~~$700.0 million from the FHLBB, inclusive of the line of credit.

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

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 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. The carrying value, net of issuance costs, totaled ~~$74.2 million and $74.1~~$74.3 million at ~~September~~both June 30, ~~2018~~2019 and December 31, ~~2017, respectively.~~2018.

The Company 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 in a merger in 2014. The Company recorded a fair value acquisition discount of $2.3 million on May 1, 2014. The remaining unamortized discount was $1.7 million and $1.8 million at ~~September~~June 30, ~~2018.~~2019 and December 31, 2018, respectively. 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.

The following table presents the Company’s outstanding borrowings under repurchase agreements as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017:~~2018:

At ~~both September~~June 30, ~~2018 and~~2019, the Company had no advances outstanding under wholesale reverse repurchase agreements. At December 31, ~~2017,~~2018, advances outstanding under wholesale reverse repurchase agreements totaled ~~$20.0 million. The outstanding advances at September 30, 2018~~$10.0 million, and consisted of ~~two~~one individual ~~borrowings~~borrowing with a remaining ~~terms~~term of one year ~~or less and a weighted average cost of 2.59%. The outstanding advances at December 31, 2017 consisted of two individual borrowings with remaining terms of two years~~ or less and had a weighted average cost of ~~2.59%~~2.44%. The Company pledged investment securities with a market value of ~~$23.2 million and $23.0~~$12.5 million as collateral for these borrowings at ~~September 30, 2018 and~~ December 31, ~~2017, respectively.~~

Retail repurchase agreements, primarily ~~consist~~consisting 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 ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, retail repurchase agreements totaled ~~$9.6~~$9.7 million and ~~$14.6~~$8.4 million, respectively. The Company pledged investment securities with a market value of ~~$25.8~~$24.6 million and ~~$28.8~~$25.4 million as collateral for these borrowings at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, 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.

At ~~September 30, 2018 and~~ December 31, ~~2017,~~2018, other borrowings ~~consist~~totaled $3.8 million and consisted of capital lease obligations ~~the Company has~~ for three of ~~its~~the Company’s leased banking ~~branches. At September 30, 2018 and December 31, 2017,~~branches acquired during a merger. Effective January 1, 2019, the ~~balance of~~Company adopted ASU No. 2016-02, Leases (Topic 842). Upon adoption, these capital lease obligations were reclassified from other borrowings to finance lease liabilities on the Consolidated Statements of Condition, and totaled ~~$3.9~~$4.5 million ~~and $4.0 million, respectively.~~at June 30, 2019. See Note 5, “Leases” in the Notes to Consolidated Financial Statements for further information.

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 ~~$423.4~~$369.9 million at a cost of ~~2.16%~~2.57% at ~~September~~June 30, ~~2018~~2019 and ~~$389.1~~$432.5 million at a cost of ~~1.32%~~2.44% at December 31, ~~2017.~~2018. 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.

Additionally, the Company has unused federal funds lines of credit with four counterparties totaling ~~$115.0 million and $107.5~~$140.0 million at ~~September~~both June 30, ~~2018~~2019 and December 31, ~~2017, respectively.~~2018.

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,

Information about interest rate swap agreements and non-hedging derivative assets and liabilities as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018 is as follows:

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.

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~~loss and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Amounts reported in accumulated other comprehensive loss 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 ~~$897,000~~$2.4 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 ~~September~~June 30, ~~2018,~~2019, the Company had ~~ten~~11 outstanding interest rate derivatives with a notional value of ~~$395.0~~$445.0 million that were designated as cash flow 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 ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019, there was no net impact to interest expense, and ~~2017,~~for the three and six months ended June 30, 2018, the Company recognized a negligible net impact to interest expense.

As of ~~September~~June 30, ~~2018,~~2019, the Company had no outstanding interest rate derivatives that were designated as a fair value hedge of interest rate risk.

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 ~~September~~June 30, ~~2018,~~2019, the Company had 8689 borrower-facing interest rate derivatives with an aggregate notional amount of ~~$631.4~~$668.9 million and 8689 broker derivatives with an aggregate notional value amount of ~~$631.4~~$668.9 million related to this program.

As of ~~September~~June 30, ~~2018,~~2019, the Company had ~~seven~~ten risk participation agreements with ~~four~~three counterparties related to a loan level interest rate swap with ~~seven~~nine of its commercial banking customers. Of these agreements, ~~three~~four 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. ~~Four~~Six agreements were entered into in conjunction with credit enhancements provided to the borrower by the Company, whereby the Company is responsible for a percentage of the exposure to the counterparty. At ~~September~~June 30, ~~2018,~~2019, the notional amount of these risk participation agreements was ~~$22.9~~$40.9 million, reflecting the counterparty participation of 31.9%. At June 30, 2019, the notional amount of the remaining four risk participation agreements was $30.1 million, reflecting the counterparty

As of ~~September~~June 30, ~~2018,~~2019, the Company had one borrower-facing forward starting loan level swap with a notional amount of $8.0 million, and one broker derivative with a notional amount of $8.0 million related to this program. These swaps are related to the permanent financing of projects that are currently in the construction phase.

As of ~~September~~June 30, ~~2018,~~2019, 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.

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.

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)~~increase) 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~~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.

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 ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017:~~2018:

The tables below ~~presents~~present the effect of derivative instruments in the Company’s Statements of Changes in Stockholders’ Equity designated as hedging instruments for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017:~~2018:

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~~Company could also be declared in default on its derivative obligations and could be required to terminate its derivative positions with the counterparty.

As of ~~September~~June 30, ~~2018,~~2019, the fair value of derivatives in a net ~~asset~~liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was ~~$6.5~~$37.9 million. As of ~~September~~June 30, ~~2018,~~2019, the Company has minimum collateral posting thresholds with certain of its derivative counterparties and had no$37.5 million of securities pledged as collateral 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 ~~September~~June 30, ~~2018,~~2019, 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.

The 2015 Plan became effective on October 29, 2015 upon approval by the Company’s ~~Shareholders.~~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 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 ~~September~~June 30, ~~2018,~~2019, there were ~~2,870,837~~2,269,546 shares available for future grants under the 2015 Plan.

For the ~~nine-month period~~six months ended ~~September~~June 30, ~~2018,~~2019, total employee and ~~Director~~director stock-based compensation expense recognized for stock options and restricted stock was ~~$12,000~~$6,000 with a related tax benefit of ~~$3,000~~$1,000 and ~~$2.2~~$1.1 million with a related tax benefit of ~~$473,000,~~$234,000, respectively. Of the total expense amount for the ~~nine-month~~six-month period, the amount for ~~Director~~director stock-based compensation expense recognized (in the Consolidated Statements of Net Income as other non-interest expense) was ~~$179,000,~~$131,000, and the amount for officer stock-based compensation expense recognized (in the Consolidated Statements of Net Income as salaries and employee benefit expense) was ~~$2.0 million.~~$938,000. For the ~~nine-month period~~six months ended ~~September~~June 30, ~~2017,~~2018, total employee and ~~Director~~director stock-based compensation expense recognized for stock options and restricted stock was ~~$76,000~~$8,000 with a related tax benefit of ~~$27,000~~$2,000 and ~~$2.0~~$1.4 million with a related tax benefit of ~~$712,000,~~$311,000, respectively.

For the three months ended ~~September~~June 30, ~~2018,~~2019, total employee and ~~Director~~director stock-based compensation expense recognized for stock options and restricted stock was ~~$4,000~~$2,000 with a negligible related tax benefit and $487,000 with a related tax benefit of ~~$1,000 and $738,000 with a related tax benefit of $163,000,~~$107,000, respectively. Of the total expense amount for the three-month period, the amount for ~~Director~~director stock-based compensation expense recognized (in the Consolidated Statements of Net Income as other non-interest expense) was ~~$60,000,~~$71,000, and the amount for officer stock-based compensation expense recognized (in the Consolidated Statements of Net Income as salaries and employee benefit expense) was ~~$682,000.~~$418,000. For the three months ended ~~September~~June 30, ~~2017,~~2018, total employee and ~~Director~~director stock-based compensation expense recognized for stock options and restricted stock was ~~$5,000~~$3,000 with a related tax benefit of ~~$2,000~~$1,000 and ~~$561,000~~$696,000 with a related tax benefit of ~~$202,000,~~$153,000, 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.

The following table presents the activity related to stock options outstanding, including options that have stock appreciation rights (“SARs”), under the Plans for the ~~nine~~six months ended ~~September~~June 30, ~~2018:~~2019:

As of ~~September~~June 30, ~~2018, the~~2019, all exercisable stock options were fully vested, and accordingly, there was no unrecognized cost related to outstanding stock ~~options was $12,000 and will be recognized over a weighted-average period of 0.7 years.~~

There were no stock options granted during the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017.~~2018.

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 at exercise date. There were ~~55,234~~no options with a SAR component included in total options exercised during the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019.

Restricted stock provides grantees with rights to shares of common stock upon completion of a service period and in certain cases obtaining a performance metric. During the restriction period, all shares are considered outstanding and dividends are paid on the restricted stock. ~~During the nine months ended September 30, 2018, the~~The Company issued ~~8,763~~1,483 shares of restricted stock from shares available under the Company’s 2015 Plan ~~to certain employees. During~~during the ~~nine~~six months ended ~~September~~June 30, ~~2018, the weighted-average grant date fair value was $16.77 per share and the restricted stock awards vest in equal annual installments on the anniversary date over a 3 year period.~~2019. The following table presents the activity for restricted stock for the ~~nine~~six months ended ~~September~~June 30, ~~2018:~~2019:

As of ~~September~~June 30, ~~2018,~~2019, there was ~~$2.9~~$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 ~~1.8~~1.9 years.

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 ~~$6.0~~$5.9 million at ~~September~~June 30, ~~2018~~2019 will be repaid principally from the

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 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:

For the Three Months
Ended September 30, For the Nine Months
Ended September 30,
2018 2017 2018 2017
(In thousands, except share data)
Net income available to common stockholders $ 16,308
$ 15,191
$ 47,741
$ 45,117
Weighted-average common shares outstanding 51,136,186
50,797,769
51,052,570
50,786,048
Less: average number of unallocated ESOP award shares (511,354 ) (534,167 ) (517,001 ) (539,814 )
Weighted-average basic shares outstanding 50,624,832
50,263,602
50,535,569
50,246,234
Dilutive effect of stock options 479,944
626,385
490,536
641,941
Weighted-average diluted shares 51,104,776
50,889,987
51,026,105
50,888,175
Net income per share:
Basic $ 0.32
$ 0.30
$ 0.94
$ 0.90
Diluted $ 0.32
$ 0.30
$ 0.94
$ 0.89

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

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.

The Company has elected the fair value option for its portfolio of residential real estate and government 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 and government mortgage loans held for sale was ~~$85.8~~$38.1 million and ~~$113.2~~$76.6 million at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. The aggregate fair value of these loans as of the same dates was ~~$86.9~~$38.8 million and ~~$114.1~~$78.8 million, respectively.

There were no residential real estate mortgage loans held for sale 90 days or more past due at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017.~~2018.

~~The following table presents the gains (losses) 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 (loss) income from mortgage banking activities in the Consolidated Statements of Net Income. The following table presents the (losses) gains in fair value related to mortgage loans held for sale for the periods indicated:

The following tables detail the assets and liabilities carried at fair value on a recurring basis as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018 and ~~indicates~~indicate 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 ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017.~~2018.

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:

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

Available-for-Sale and Marketable Equity Securities: ~~Securities available-for-sale and marketable equity securities 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~~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~~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.

Loans Held for Sale: The fair value of residential and government 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 the fair value of the asset. Although some assumptions in determining fair value are based on standards used by market participants, 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.

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~~10-, 15- and ~~20 year~~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 ~~15.9%~~20.2% 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 ~~September~~June 30, ~~2018:~~2019:

(Dollars in thousands)

Fair
Value
Valuation Technique Unobservable Inputs
Range
(Weighted Average)
Asset-backed securities $ 98,938
Discounted Cash Flow Discount Rates 3.8% - 6.6% (4.93%)
Cumulative Default % 0.6% - 12.9% (6.76%)
Loss Given Default 0.2% - 3.9% (2.08%)

Mortgage servicing rights $ 14,400
Discounted Cash Flow Discount Rate 11.0% - 15.5% (12.73%)
Cost to Service $75 - $135 ($87.87)
Float Earnings Rate 1.5% (1.5%)

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.

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

Other significant unobservable inputs to the fair value measurement of ~~MSR’s~~MSRs 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,~~increases, the fair value decreases.

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 ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018 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 ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017.~~2018.

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.

~~Losses~~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.

Gains (losses) on assets recorded at fair value on a non-recurring basis for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018 are as follows:

As of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the carrying value and estimated fair values of the Company’s financial instruments are as described below:

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.

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

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 ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017:~~2018:

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.

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 ~~$42.3~~$44.3 million at ~~September~~June 30, ~~2018~~2019 and is included in other assets in the Consolidated Statement of Condition. At ~~September~~June 30, ~~2018,~~2019, the Company was contractually committed under these limited partnership agreements to make additional capital contributions of ~~$13.6~~$3.0 million, which constitutes our maximum potential obligation to these partnerships.

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 ~~September~~June 30, ~~2018.~~2019.

On July 15, 2019, the Company entered into a merger agreement with People’s United Financial, Inc. (“People’s United”) pursuant to which, upon the terms and subject to the conditions set forth therein, the Company will merge with and into People’s United, with People’s United as the surviving corporation, in an all-stock transaction valued at approximately $759.0 million, based on the closing stock price of People’s United on July 12, 2019 and including the value of stock options and other equity awards. Following the merger, United Bank will merge with and into People’s United Bank, National Association, with People’s United Bank, National Association surviving.

At the effective time of the merger, each outstanding share of Company common stock will be converted into the right to receive 0.875 shares (the “Exchange Ratio”) of People’s United common stock. Company stock options and other equity awards, whether or not then vested, will be canceled and converted into the right to receive a number of shares of People’s United common stock based upon relevant formulas set forth in the merger agreement, and based upon the Exchange Ratio.

The merger agreement contains customary representations and warranties from both United Financial and People’s United, and each party has agreed to customary covenants. The completion of the merger is also subject to customary closing conditions.

The merger agreement was unanimously approved by the boards of directors of each of the Company and People’s United. Subject to the receipt of required regulatory approvals and satisfaction or waiver of other customary closing conditions in accordance with the merger agreement, the Company anticipates the merger to be complete during the fourth quarter of 2019.

In addition to factors previously disclosed in People’s United’s and United Financial Bancorp’s reports filed with the SEC and those identified elsewhere in this communication, the following factors, among others, could cause actual results to differ materially from forward-looking statements or historical performance: ability to obtain regulatory approvals and meet other closing conditions to the merger, including approval by United Financial Bancorp shareholders on the expected terms and schedule, and including the risk that regulatory approvals required for the merger are not obtained or are obtained subject to conditions that are not anticipated; delay in closing the merger; difficulties and delays in integrating the United Financial Bancorp business or fully realizing cost savings and other benefits; business disruption following the merger; changes in asset quality and credit risk; the inability to sustain revenue and earnings growth; changes in interest rates and capital markets; inflation; customer acceptance of People’s United’s products and services; customer borrowing, repayment, investment and deposit practices; customer disintermediation; the introduction, withdrawal, success and timing of business initiatives; competitive conditions; the inability to realize cost savings or revenues or to implement integration plans and other consequences associated with mergers, acquisitions and divestitures; economic conditions; the impact, extent and timing of technological changes and capital management activities; litigation; increased capital requirements, other regulatory requirements or enhanced regulatory supervision; and other actions of the Federal Reserve Board and legislative and regulatory actions and reforms.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&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 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, ~~2017.~~2018. The following sections are included in the MD&A:

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 financial 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.

The following is a calculation of our efficiency ratio for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017:~~2018:

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 ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017.~~2018. 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 below include the effect of deferred costs, discounts and premiums that are amortized or accreted to interest income or expense.

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.

The following discussion provides a summary and comparison of the Company’s operating results for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017.~~2018.

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~~interest-earning assets and the cost of interest-bearing funds as a percentage of average earning assets. Growth in net interest income has resulted from the growth in interest-earning assets outpacing the growth in interest-bearing liabilities, primarily reflecting organic loan growth and portfolio purchases.

For the three months ended ~~September~~June 30, ~~2018,~~2019, tax-equivalent net interest income ~~increased $384,000~~decreased $1.6 million from the comparative ~~2017~~2018 period. This was ~~mainly~~primarily due to ~~an increase~~the cost of interest bearing deposits rising $7.7 million year over year, with the main drivers being increases in ~~average earning assets of $247.7 million, offset by an increase of $212.7 million in interest-bearing liabilities, due to loan growth which was primarily funded by borrowings~~NOW and money market accounts and time deposits. The increase in total interest ~~and dividend income~~expense of ~~$8.1~~$7.4 million was partially offset by the increase in tax-equivalent interest ~~expense~~and dividend income of ~~$7.7~~$5.9 million. The net interest margin decreased ~~eight~~15 basis points, the yield on average ~~earning~~interest-earning assets increased 27 basis points, and the cost of interest-bearing liabilities increased 52 basis points from the same period in 2018.

For the six months ended June 30, 2019, tax-equivalent net interest income decreased $1.5 million from the comparative 2018 period. The loss is derived from the cost of interest bearing deposits increasing $16.6 million year over year, with the main drivers being increases in NOW and money market accounts and time deposits. The increase in total interest expense of $16.8 million was partially offset by the increase in tax-equivalent interest and dividend income of $15.2 million. The net interest margin decreased 13 basis points, the yield on average interest-earning assets increased 35 basis points, and the cost of interest-bearing liabilities increased 5057 basis points from the same period in ~~2017.~~

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 ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 was ~~$5.59~~$5.76 billion and ~~$5.50~~$5.75 billion, respectively, and ~~had an~~the average yield ~~of 4.33% and 4.22%, respectively. Increases~~for both periods was 4.56%. There were increases in average balances ~~for~~of loans ~~were recorded~~ in all categories except construction and home equity loans for both periods, and in total, average loans increased ~~$351.0~~by $277.5 million and ~~$398.4~~$290.0 million, respectively, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018, respectively,~~2019 as compared to the same periods in 2017. For the three and nine months ended September 30, 2018, the average balance of commercial real estate loans, commercial business loans, other consumer loans, residential real estate loans, and home equity loans increased $108.8 million and $148.1 million, $50.4 million and $65.9 million, $99.4 million and $92.9 million, $52.7 million and $57.3 million, and $48.2 million and $50.2 million, respectively, from the respective prior period in 2017.2018. The loan portfolio has responded favorably to the increase in the LIBOR and Prime rate indices, as 30% of the portfolio is priced off of the LIBOR index, and ~~14%~~13% of the portfolio is priced off of the Prime rate ~~index.~~index as of June 30, 2019.

The average balance of investment securities ~~for the three months ended September 30, 2018~~ decreased ~~$95.2~~$172.8 million ~~when compared to the same period in 2017,~~and $124.0 million, respectively, and the average yield decreased ~~by four basis points. The average balance of investment securities decreased $68.0 million,~~27 and ~~the average yield decreased four~~17 basis points, respectively, for the ~~nine~~three and six months ended ~~September~~June 30, ~~2018~~2019 compared to the same ~~period~~periods in ~~2017.~~2018. The decline in the portfolio ~~balance~~balances and yields during the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 was the result of redirecting portfolio cash flows to more favorable risk adjusted returns on capital achieved in the loan ~~portfolio.~~portfolio, as well as sales of lower yielding collateralized mortgage obligations and municipal securities during the periods.

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 compared to the same periods in ~~2017,~~2018, the average balance of total interest-bearing deposits increased ~~$343.6~~$328.8 million and ~~$349.6~~$382.7 million, respectively. These increases were primarily due to the Company’s continued focus to grow ~~low cost~~ deposits and the continued success in new account acquisition strategies. The average cost of total interest-bearing deposits increased 5056 and 4161 basis points, respectively, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018, respectively,~~2019 compared to the same periods in ~~2017.~~2018. The average balances of FHLBB advances decreased ~~$107.6~~$265.2 million and ~~$41.9~~$249.2 million, respectively, while the average cost increased 7365 and 7071 basis points, respectively, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018, respectively,~~2019 compared to the same periods in ~~2017,~~2018, as the Company utilized excess funds to pay down maturing advances. The Company continued to utilize shorter duration advances to align the structure of the advances with the cash flow hedges of interest rate risk to extend the duration of the portfolio. Overnight FHLBB advance and short term rates were elevated due to ~~continued~~ Federal Open Market Committee (“FOMC”) rate increases during 2018 and a flattening yield curve.

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.

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

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

Management recorded a provision for loan losses of ~~$2.0~~$2.5 million and ~~$6.3~~$4.5 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018, respectively,~~2019, compared to ~~$2.6~~$2.4 million and ~~$7.1~~$4.3 million for the same periods of ~~2017.~~2018. The primary factors that influenced management’s decision to record the provision were organic growth during the ~~period,~~periods, the on-going assessment of estimated exposure on impaired loans, level of delinquencies, and general economic conditions. Impaired loans totaled ~~$40.5~~$49.6 million at ~~September~~June 30, ~~2018,~~2019, compared to $45.9 million at December 31, ~~2017, a decrease~~2018, an increase of ~~$5.4~~$3.7 million, or ~~11.8%~~8.0%, primarily reflecting ~~decreases~~increases of ~~$2.3~~$3.7 million in commercial business impaired loans and $1.2 million in ~~construction impaired loans, and $1.1 million in~~ investor ~~non-owner occupied~~ commercial real estate impaired loans, ~~slightly~~ offset by ~~increases~~a decrease in ~~other consumer and residential~~owner-occupied commercial real estate impaired loans of ~~$493,000 and $149,000, respectively.~~$532,000. Troubled debt restructured (“TDR”) loans totaled ~~$20.0~~$24.8 million at ~~September~~June 30, ~~2018,~~2019, compared to ~~$22.7~~$22.2 million at December 31, ~~2017, a decrease~~2018, an increase of ~~$2.7~~$2.6 million. At ~~September~~June 30, ~~2018,~~2019, the allowance for loan losses totaled ~~$49.9~~$53.2 million, representing ~~0.90%~~0.92% of total loans and ~~183.41%~~174.05% of non-performing loans compared to an allowance for loan losses of ~~$47.1~~$51.6 million, which represented ~~0.88%~~0.91% of total loans and ~~148.76%~~168.32% of non-performing loans as of December 31, ~~2017.~~2018. 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.

Total non-interest income was ~~$9.6 million~~$840,000 and ~~$27.2~~$9.8 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, with non-interest income representing ~~16.5%~~1.8% and ~~16.0%~~9.5% of total revenues, respectively. Total non-interest income was $8.4 million and ~~$27.0~~$17.6 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, with non-interest income representing ~~15.3%~~14.8% and ~~16.4%~~15.7% of total revenues, respectively. The following is a summary of non-interest income by major category for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017:~~2018:

Service Charges and Fees: ~~For the three months ended September 30, 2018, the Company recorded $6.6 million in service charges and fees compared to $6.5 million in the prior year period.~~ Service charges and fees were ~~$19.3~~$7.5 million and $13.7 million for ~~both of~~ the ~~nine~~three and six months ended ~~September~~June 30, 2019, respectively, an increase of $996,000 and $1.0 million from the comparable 2018 ~~and 2017.~~periods.

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, the Company recorded increases in revenue generated by the Company’s investment advisor, United Wealth Management (“UWM”), debit card fees and ~~deposit and service charges for various products, which was~~non-sufficient funds (“NSF”) fees, partially offset by a decrease in loan swap fee ~~income. Revenue generated from loan swap fee~~ income ~~decreased as~~on a ~~direct result of lower transactional volume, contributing~~year to the year-to-date decline in service charges and fees. 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.date basis.

The increase in revenue generated by UWM is due to the Company’s expansion of the financial advisory program that has continued the strategy of acquiring proven talent with deep local relationships, as well as installing Series 6 representatives in select branches to work alongside our retail employees to ensure a coordinated sales approach to meeting the financial needs of our customers. Additionally, although to a lesser extent, assets under management increased which also contributed to higher revenues period over period. The increase in NSF fees and debit card fees is primarily due to higher transactional volume partly related to the branch acquisitions completed in the fourth quarter of 2018. NSF fees also benefited from a modification of the fee structure that took place in the third quarter of 2018. These increases were offset by a decrease in loan swap fee income as a direct result of lower transactional volume on a year to date basis, as the Company did not enter into any swaps in the first quarter of 2019. For the three months ended June 30, 2019, loan swap fee income was relatively stable, increasing approximately $17,000 over the prior-year period. 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.

Gain on Sales of Securities, Net: For the three and six months ended June 30, 2019, the Company recorded $137,000 and $874,000, respectively, in net gains on security sales compared to $62,000 and $178,000 in net gains in the prior-year periods.

Bank-Owned Life Insurance (“BOLI”) Income: For the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, the Company recorded BOLI income of $1.5 million and ~~$4.8~~$3.5 million compared to ~~$1.2~~$1.7 million and ~~$3.5~~$3.3 million for the same periods in ~~2017,~~2018, a decrease of $150,000 and an increase of ~~$293,000 and $1.3 million,~~$150,000, respectively. The decrease for the three-month period was mainly due to no death benefit proceeds received in the current-year period as compared to $209,000 of death benefit proceeds received in the prior-year period. The increase for the ~~three and nine months ended September 30, 2018~~six-month period was ~~mainly~~primarily due to ~~purchases of higher yielding~~the fact that the Company purchased additional BOLI policies in late December ~~2017 and early January 2018. Additionally,~~2018 for ~~the nine months ended September 30, 2018, the Company also benefited from recording death benefit proceeds~~which a full two quarters of ~~$435,000.~~income was earned in 2019.

Net Loss on Limited Partnership Investments: The Company has investments in low income housing, new markets housing and alternative energy tax credit partnerships. ~~In June 2018, the Company invested $2.5 million in two alternative energy tax credit partnerships.~~

Non-interest expense increased ~~$3.7~~$1.1 million to ~~$38.9~~$39.5 million for the three months ended ~~September~~June 30, ~~2018~~2019 and ~~$8.5~~$3.5 million to ~~$114.0~~$78.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019.

For both the three months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, annualized non-interest expense represented ~~2.17% and 2.04%~~2.16% of average assets, while annualized non-interest expense represented ~~2.14%~~2.15% and ~~2.08%~~2.12% of average assets for the ~~nine~~six months ended ~~September~~June 30, 2019 and 2018, ~~and 2017,~~ respectively.

The following table summarizes non-interest expense for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017:~~2018:

Salaries and Employee Benefits: Salaries and employee benefits were ~~$22.6~~$21.9 million for the three months ended ~~September~~June 30, ~~2018, an increase~~2019, a decrease of ~~$2.6 million~~$190,000 from the comparable ~~2017~~2018 period. The decrease is primarily attributable to (a) a decrease in salaries due to reduced staffing in the Company’s mortgage division in 2019 as a result of the Company’s shift in mortgage banking strategy at the end of 2018, and (b) a decrease in executive restricted stock compensation due primarily to forfeitures of unvested awards by executives that left the Company during the period, offset by an increase in health insurance costs as a result of a higher level of claims being submitted in the current period as compared to the same period in 2018.

Salaries and employee benefits were ~~$66.0~~$44.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, an increase of ~~$6.6 million~~$814,000 from the comparable ~~2017~~2018 period.

Occupancy and ~~temporary help due to the completion of project work for the year-to-date period, while the quarter-to-date period remained relatively flat.~~

Professional Fees: Professional fees increased $1.3 million and ~~a year-to-date decrease in expenses related to snow removal.~~

Marketing and Promotions: Marketing and promotion expenses decreased $407,000 and $234,000 for the three and six months ended June 30, 2019 compared to the same periods in 2018. The decrease was primarily due to a decrease in ~~consulting fees, partially offset by increases~~digital advertising and production costs. In the second quarter of 2018, the Company ran a debit card promotion to encourage customers to activate and use debit cards in ~~legal fees.~~exchange for VISA gift cards; and there were also a number of promotional campaigns run for HELOCs, Simply Checking accounts and 30-month certificates of deposit. In addition, there was advertising of the Company’s new branch locations in Springfield and City Place in Hartford, both of which were new during the prior-year period. The Company did not run as many promotional campaigns during the comparative periods in 2019, thereby leading to decreases in these expenses.

~~Marketing and Promotions:~~Other Expenses: For the three months ended ~~September~~June 30, 2018, marketing and promotions increased $32,000 when compared to the same period in 2017, which was driven by increases in digital and newspaper advertising. For the nine months ended September 30, 2018, there was a $43,000 decrease as compared to the same period in 2017, which was attributable to decreases in television and direct mail advertising.

The provision for income taxes was ~~$726,000~~$9.2 million and ~~$2.2 million~~$175,000 for the three months ended ~~September~~June 30, 2019 and 2018, respectively, and ~~2017, and $2.3~~$11.2 million and ~~$6.6~~$1.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively. The Company’s effective tax rate for the three months ended ~~September~~June 30, 2019 and 2018 was 154.9% and ~~2017 was 4.3% and 12.5%~~1.1%, respectively. The Company’s effective tax rate for the ~~nine~~six months ended ~~September~~June 30, 2019 and 2018 was 54.3% and ~~2017 was 4.5% and 12.8%~~4.7%, respectively. The annual projected effective tax rate as of June 30, 2019 is expected to be approximately 30%. The effective tax rate is ~~lower~~higher than the statutory rate due to ~~favorable permanent differences such as~~the establishment of tax ~~exempt income from municipal securities and BOLI, as well as tax credit benefits. The decrease~~reserves associated with the Company’s investment in D.C. Solar LLCs during the tax expense over the prior year periods is primarily due to the Tax Cuts and Jobs Act which was enacted into law at the end of 2017. This resulted in a reduction of the corporate income tax rate from 35% to 21% for tax years 2018 and forward. As such, overall provision for income taxes was less than reflected in the prior year. quarter ended June 30, 2019.

The Company anticipates the potential for increased periodic volatility in future effective tax rates due to the impact of FASB’s ASU No. ~~2016-09:~~ 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, 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’s year-to-date impact on tax expense related to the tax benefit of stock compensation is approximately $277,000.~~

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.

The Company had total assets of ~~$7.21~~$7.34 billion at ~~September~~June 30, ~~2018~~2019 and ~~$7.11~~$7.36 billion at December 31, ~~2017, an increase~~2018, a decrease of ~~$93.3~~$20.9 million, or ~~1.3%~~0.3%, primarily due ~~to the increases in net loans of $187.6 million and $33.6 million in the cash surrender value of bank-owned life insurance. These increases were partially offset by~~ a decrease in the total investment securities portfolio of ~~$92.4~~$132.8 million and a decrease in loans held for sale of ~~$27.1~~$40.0 million. These decreases were partially offset by a $97.3 million ~~as the Company delivered~~increase in net loans, a ~~significant level of loans held for sale to third party investors in the first half of 2018, and a $10.1~~$16.8 million ~~decrease~~increase in cash and cash ~~equivalents.~~equivalents, and a net $46.5 million dollar increase in right-of-use assets due to the adoption of ASC 842.

Total net loans of ~~$5.50~~$5.72 billion, with an allowance for loan losses of ~~$49.9~~$53.2 million at ~~September~~June 30, ~~2018,~~2019, increased ~~$187.6~~$97.3 million, or ~~3.5%~~1.7%, when compared to total net loans of ~~$5.31~~$5.62 billion, with an allowance for loan losses of ~~$47.1~~$51.6 million at December 31, ~~2017.~~2018. The increase in loans was due primarily to organic loan growth, as well as continued loan portfolio purchases. Net loans increased due to growth in all categories except ~~owner-occupied~~ commercial construction loans, residential real estate loans, residential construction loans and home equity loans.

Total deposits of ~~$5.50~~$5.73 billion at ~~September~~June 30, ~~2018~~2019 increased ~~$302.1~~$55.9 million, or ~~5.8%~~1.0%, when compared to total deposits of ~~$5.20~~$5.67 billion at December 31, ~~2017.~~2018. The increase in deposits was mainly due to growth in demand accounts, NOW accounts and time deposits, offset by decreases in money market ~~deposits~~ and NOW accounts, offset primarily by a decrease in certificates of deposits, which is reflective of the Company’s strategy to emphasize growth in transactional accounts to drive low-cost core deposit growth.savings accounts. The Company’s gross loan-to-deposit ratio was 100.5% at ~~September~~June 30, ~~2018,~~2019, compared to ~~102.7%~~99.8% at December 31, ~~2017.~~2018.

At ~~September~~June 30, ~~2018,~~2019, total equity of ~~$709.8~~$720.0 million increased ~~$16.5~~$7.5 million when compared to total equity of ~~$693.3~~$712.5 million at December 31, ~~2017.~~2018. The increase in equity for the period ended ~~September~~June 30, ~~2018~~2019 was primarily due to year-to-date net income ~~partially offset by dividends paid to common shareholders, as well as increases~~and decreases in accumulated other comprehensive losses as a result of ~~a decrease~~an increase in the market value of the Company’s investment portfolio as compared to December 31, ~~2017.~~2018, partially offset by dividends paid to common shareholders. At ~~September~~June 30, ~~2018,~~2019, the tangible common equity ratio was ~~8.34%~~8.29%, compared to ~~8.20%~~8.15% at December 31, ~~2017.~~2018.

See Note 9,10, “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.

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:

During the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, the available-for-sale securities portfolio decreased ~~$78.8~~$132.8 million to ~~$972.0~~$840.5 million, representing ~~13.5%~~11.5% of total assets at ~~September~~June 30, ~~2018,~~2019, from ~~$1.05 billion~~$973.3 million and ~~14.8%~~13.2% of total assets at December 31, ~~2017.~~2018. The decrease is ~~partially~~largely due to ~~mark-to-market unrealized losses~~a coordinated investment strategy in which the Company sold $133.4 million of mortgage-backed securities, collateralized mortgage obligations and municipal bonds. These securities carried particularly low yields, and the proceeds generated were used to pay down borrowings. Given market conditions in the ~~portfolio as a result~~first quarter, the Company was able to dispose of the increase in the general level of interest rates over the first nine months of 2018, as well as a reduction of reinvestment of principal and interest payments that had been generated by the portfolio.these assets without realizing significant losses. The Company continues to maintain its barbell portfolio management strategy, with any purchases made focusing on maintaining the portfolio duration and ensuring credit diversification. Portfolio activity ~~was marked by low~~observed less transactional volume over the quarter. There were ~~multiple~~various opportunities to swap out of lower yielding securities ~~called throughout the first nine months of 2018,~~ and ~~any reinvestment was done~~move into agency pass throughs with ~~the goal of maintaining portfolio duration,~~attractive structure and yield characteristics, as well as increasing overall credit quality of the portfolio. While purchasing these securities, the Company maintains a bias towards higher credit enhancement and ~~capital efficiency,~~quality when possible, while ~~attempting to take~~also taking advantage of ~~relatively higher yields along certain tenors.~~any relative value opportunities.

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 held-to-maturity or trading securities. ~~Given~~

Further accounting guidance became effective in the ~~Company’s early adoption of~~first quarter. ASU No. ~~2017-12,~~ ~~Derivatives & Hedging (Topic 815)~~2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): ~~Targeted Improvements~~Premium Amortization on Purchased Callable Debt Securities, which requires the Company to ~~Accounting~~recognize the amortization period for ~~Hedging Activities, all~~callable debt securities ~~that were previously classified~~held at a premium as ~~held-to-maturity at December 31, 2017 were considered pre-payable and were transferred~~the period from purchase to ~~the available-for-sale classification as of~~earliest call date, was adopted effective January 1, ~~2018. As~~2019. This guidance specifically affected the portfolio allocation to municipal bonds and resulted in lower yields being recognized on these securities. The Company recorded a cumulative-effect adjustment in the amount of ~~September 30, 2018, all of the Company’s debt securities were classified as available-for-sale.~~

The Company held ~~$915.6~~$313.4 million in securities that were in an unrealized loss position at ~~September~~June 30, ~~2018; $497.3~~2019; $84.9 million of this total had been in an unrealized loss position for less than twelve months with the remaining ~~$418.2~~$228.5 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 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.

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 7,8, “Derivatives and Hedging Activities,” in the Notes to Unaudited Consolidated Financial Statements contained elsewhere in this report for additional information concerning derivative financial instruments.

The Company’s wholesale lending team includes bankers, cash management specialists and originations, underwriting and servicing staff in 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 Wealth Management (“UWM”).

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 allows 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 business 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.

The Company purchases 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 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 ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017:~~2018:

As shown above, gross loans were ~~$5.53~~$5.76 billion, an increase of ~~$188.6~~$98.7 million, or ~~3.5%~~1.7%, at ~~September~~June 30, ~~2018~~2019 from December 31, ~~2017.~~2018.

Total commercial real estate loans represent the largest segment of our loan portfolio at ~~43.4%~~43.6% of total loans and increased ~~$23.6~~$68.9 million, or ~~1.0%~~2.8%, to ~~$2.40~~$2.51 billion from December 31, ~~2017.~~2018. 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 ~~September~~June 30, ~~2018,~~2019, comprising ~~34.1%~~34.2% of total loans and OOCRE represents ~~7.9%~~8.0% of the portfolio. 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 ~~$78.2~~$80.1 million at ~~September~~June 30, ~~2018,~~2019, approximately ~~$26.2~~$22.6 million of which is residential use and ~~$52.0~~$57.5 million of which is commercial use, compared to total commercial real estate construction loans of ~~$78.1~~$87.5 million at December 31, ~~2017, $25.9~~2018, $25.7 million of which was residential use and ~~$52.2~~$61.8 million of which was commercial use.

Commercial business loans increased ~~$20.7~~$23.7 million to ~~$861.0~~$910.5 million at ~~September~~June 30, ~~2018~~2019 from ~~$840.3~~$886.8 million at December 31, ~~2017.~~2018. 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 participate in loans to borrowers in other regions or industries of which 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 are 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 and 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. 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. 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 ~~September~~June 30, ~~2018,~~2019, comprising ~~23.2%~~22.8% of total loans, ~~increasing $78.7~~decreasing $7.2 million from December 31, ~~2017.~~2018. The Company had originations of both adjustable and fixed rate mortgages of ~~$378.5~~$78.4 million for the ~~nine~~six months ending ~~September~~June 30, ~~2018,~~2019, 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 ~~September~~June 30, ~~2018,~~2019, the home equity portfolio totaled ~~$579.9~~$575.7 million compared to ~~$583.2~~$583.5 million at December 31, ~~2017.~~2018. During the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, the Company purchased HELOC portfolios totaling ~~$62.2~~$30.3 million, compared to purchases totaling ~~$105.2~~$82.5 million for the year ended December 31, ~~2017.~~2018. The total principal balance of the HELOC purchased portfolios outstanding at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018 was ~~$247.5~~$239.8 million and ~~$246.5~~$249.3 million, respectively. These loans are not serviced by the Company. The purchased HELOC portfolios are secured by second liens. The Company ~~may continue~~plans to stop purchasing HELOCs ~~throughout 2018 to maintain its existing exposure.~~in the fourth quarter of 2019.

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 ~~$32.8~~$12.5 million at ~~September~~June 30, ~~2018,~~2019, compared to ~~$40.9~~$20.6 million at December 31, ~~2017.~~2018.

Other consumer loans totaled ~~$369.8~~$439.4 million, or ~~6.7%~~7.6%, of the total loan portfolio at ~~September~~June 30, ~~2018.~~2019. 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 ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017, $102.4~~2018, $83.7 million and ~~$130.9~~$95.5 million 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~~is to ~~marginally increase~~cease purchasing home improvement loans during the ~~level~~third quarter of consumer loans throughout 2018, 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.2019.

~~LH-finance,~~LH-Finance, the Company’s marine lending unit, includes 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, and 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.

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.

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

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 ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, loans totaling ~~$2.1~~$3.8 million and ~~$953,000,~~$3.5 million, 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.

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

As displayed in the table above, non-performing assets at ~~September~~June 30, ~~2018~~2019 decreased to ~~$29.0~~$32.0 million compared to ~~$33.8~~$32.1 million at December 31, ~~2017.~~2018.

Non-accruing TDR loans decreased by ~~$1.8~~$1.2 million since December 31, ~~2017,~~2018, due primarily to decreases of ~~$1.7 million in commercial business non-accruing TDR loans and $498,000~~$398,000 in residential real estate non-accruing TDR loans ~~offset by an increase~~and $332,000 in ~~construction~~commercial business non-accruing TDR ~~loans of $715,000.~~loans. The decrease in ~~commercial business~~ non-accruing TDRs is the result of charge offs and paydowns on loans as compared to December 31, 2017. The increase in construction non-accruing TDR loans is the result of one commercial relationship related to construction for a residential subdivision, which was previously reported as non-accrual and was modified during the year, resulting in the TDR designation.2018.

Home equity non-accrual loans ~~decreased $963,000~~increased $316,000 to ~~$4.0~~$5.1 million due to ~~improved~~decline in performance of HELOCs during the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~

Residential real estate non-accrual loans ~~increased $125,000~~decreased $324,000 to ~~$11.9~~$12.9 million at ~~September~~June 30, ~~2018.~~2019. 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 Company is committed to mortgage

At ~~September~~June 30, ~~2018,~~2019, commercial real estate non-accrual loans (including owner-occupied and investor non-owner occupied commercial real estate loans) ~~decreased $758,000~~increased $765,000 and commercial business non-accrual loans ~~decreased $492,000.~~increased $722,000 as compared to December 31, 2018. The movements in these categories were the result of several larger relationships which impacted the totals within the categories.

~~Non-accrual construction~~Construction non-accrual loans decreased ~~$1.2 million,~~$62,000 as compared to December 31, 2018, and consists of one commercial relationship at ~~September~~both June 30, 2019 and December 31, 2018 totaling ~~$243,000,~~$137,000 and $199,000, respectively, which relates to construction for a residential subdivision. ~~At December 31, 2017, non-accrual construction loans consisted of two commercial relationships and totaled $1.4 million.~~

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~~one commercial ~~loans along with increases in residential and home equity TDRs~~relationship totaling $3.5 million during the period ended ~~September~~June 30, ~~2018.~~2019.

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

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

The allowance for loan losses (“ALL”) 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 ~~September~~June 30, ~~2018,~~2019, 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 ~~$49.9~~$53.2 million, or ~~0.90%~~0.92% of total loans, at ~~September~~June 30, ~~2018~~2019 as compared to an allowance for loan losses of ~~$47.1~~$51.6 million, or ~~0.88%~~0.91% of total loans, at December 31, ~~2017.~~2018. 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 ~~September~~June 30, ~~2018~~2019 increased ~~$235,000~~$120,000 to ~~$2.0~~$2.1 million compared to December 31, ~~2017.~~2018. 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 ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017.~~2018.

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 ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the reserve for unfunded credit commitments was ~~$1.8~~$2.3 million and ~~$1.7~~$2.1 million, respectively.

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.

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,~~ATMs, 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~~Company 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:

Deposits totaled ~~$5.50~~$5.73 billion at ~~September~~June 30, ~~2018, an increase~~2019, a decrease of ~~$302.1~~$55.9 million compared to December 31, ~~2017.~~2018. Core deposits increased ~~$435.8~~$13.4 million, or ~~12.8%~~0.3%, from December 31, ~~2017~~2018 due to ~~the Company’s continued strategy to focus on obtaining low cost core deposits.~~seasonal increases in demand and NOW accounts, coupled with new account acquisitions.

Time deposits included brokered ~~certificate~~certificates of ~~deposits~~deposit of ~~$199.8~~$109.0 million and ~~$259.1~~$179.6 million at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, 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,~~deposit, in-market time deposits totaled ~~$1.46~~$1.71 billion and ~~$1.54~~$1.60 billion at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.

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:

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 ~~$233.2~~$145.3 million to ~~$812.7~~$651.8 million at ~~September~~June 30, ~~2018,~~2019, exclusive of the purchase accounting mark adjustment on the advances, compared to ~~$1.05 billion~~$797.1 million at December 31, ~~2017.~~2018. At ~~September~~June 30, ~~2018, $687.7~~2019, $526.8 million of the Company’s ~~$812.7~~$651.8 million outstanding FHLBB advances were at fixed coupons ranging from ~~1.39%~~1.42% to 3.35%, with a weighted average cost of ~~2.18%~~2.53%. Additionally, the Company has four advances with the FHLBB totaling $125.0 million that are underlying hedge instruments; the interest is based on the 3-month LIBOR and adjusts quarterly. The average cost of funds including these

~~Borrowings~~The Company had no borrowings under ~~reverse purchase~~wholesale repurchase agreements at June 30, 2019 while the agreements totaled ~~$20.0~~$10.0 million at both September 30, 2018 and December 31, 2017. The outstanding borrowings at September 30, 2018 consisted of two individual agreements with remaining terms of one year or less and a weighted-average cost of 2.59%. The outstanding borrowings at December 31, ~~2017 consisted of two individual agreements with remaining terms of two years or less and a weighted-average cost of 2.59%.~~2018. 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 ~~$9.6~~$9.7 million and ~~$14.6~~$8.4 million at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.

Subordinated debentures totaled ~~$80.1~~$80.3 million and ~~$80.0~~$80.2 million at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.

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 ~~September~~June 30, ~~2018, $78.6~~2019, $114.7 million of the Company’s assets were held in cash and cash equivalents compared to ~~$88.7~~$98.0 million at December 31, ~~2017.~~2018. 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 ~~September~~June 30, ~~2018,~~2019, the Company had ~~$812.7~~$651.8 million in advances from the FHLBB and an additional available borrowing limit of ~~$531.6~~$700.0 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 ~~$423.4~~$369.9 million at ~~September~~June 30, ~~2018.~~2019. Internal policies limit wholesale borrowings to 40% of total assets, or ~~$2.88~~$2.93 billion, at ~~September~~June 30, ~~2018.~~2019. In addition, the Company has uncommitted federal funds lines of credit with four counterparties totaling ~~$115.0~~$140.0 million at ~~September~~June 30, ~~2018.~~2019. No federal funds purchased were outstanding at ~~September~~June 30, ~~2018.~~2019.

The Company has established access to the Federal Reserve Bank of Boston’s discount window through a borrower in custody agreement. As of ~~September~~June 30, ~~2018,~~2019, the Bank had pledged 24 commercial loans, with outstanding balances totaling ~~$170.4~~$166.0 million. Based on the amount of pledged collateral, the Bank had available liquidity of ~~$132.9~~$134.1 million.

At ~~September~~June 30, ~~2018,~~2019, the Company had outstanding commitments to originate loans of ~~$117.3~~$129.8 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 ~~$1.08~~$1.30 billion. At ~~September~~June 30, ~~2018,~~2019, time deposits scheduled to mature in less than one year totaled ~~$998.2 million.~~$1.34 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 ~~17,~~16, “Regulatory Matters” in the Company’s ~~2017~~2018 Consolidated Financial Statements and notes thereto included

The Company and the Bank are subject to various regulatory capital requirements. As of ~~September~~June 30, ~~2018,~~2019, the Bank is categorized as “well-capitalized” under the regulatory framework for prompt corrective action. See Note 9,10, “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.

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, (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.

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~~remain 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 ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018 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 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~~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 respective 1212- and 24-month periods, ~~Management~~management includes a 150 basis point ramp simulation; the simulation assumes that interest rates increase by 25 basis points every other 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~~management includes a 50 basis point parallel decrease in rates.

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~~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 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 ~~September~~June 30, ~~2018,~~2019, income at risk (i.e., the change in net interest income) decreased ~~1.71%~~1.28% and ~~3.89%~~4.91% based on a 300 basis point instantaneous increase or a 50 basis point instantaneous decrease, respectively. When considering the impact of the 150 basis point ramp simulation, income at risk increased ~~4.81%~~3.79% over the 12-month simulation horizon. The ~~change~~reduction in sensitivities to changing interest rates, as compared to December 31, ~~2017,~~2018, has ~~increased~~decreased largely due to a change in the investment portfolio that was mostly offset by changes in the borrowings composition. The investment portfolio had lower income variation given the removal of callable securities which were previously providing favorable extension income. The borrowings portfolio mix changed as we replaced wholesale funding with a growth in the Company’s ~~money market deposit base,~~core deposits and certificate of deposits which ~~is modeled to~~ have lower repricing frequencies in a ~~higher beta in~~ rising interest rate ~~simulations.~~simulation than wholesale funding. 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.

.

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.

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 ~~September~~June 30, ~~2018.~~2019.

There have been no material changes in the Risk Factors previously disclosed in Item 1A of the Company’s ~~annual report~~Annual Report on Form 10-K for the period ended December 31, ~~2017.~~2018, except for the following:

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 ~~September~~June 30, ~~2018,~~2019, there were ~~1,073,636~~834,636 maximum shares that may yet be purchased under this publicly announced plan.

None.

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.



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

225 Asylum Street,	Hartford,	Connecticut	06103
(Address of principal executive offices)			(Zip Code)



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, no par value	UBNK	NASDAQ Global Select Stock Market



Large accelerated filer	ý ☒	Accelerated filer	¨☐

Non-accelerated filer	¨ ☐	Smaller reporting company	¨☐

		Emerging growth company	¨ ☐



		Page
Part I - FINANCIAL INFORMATION

Item 1.	~~Interim~~ Financial Statements ~~(Unaudited)~~

	Consolidated Statements of Condition as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018	3

	Consolidated Statements of Net Income (Loss) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018	4

	Consolidated Statements of Comprehensive Income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018	5

	Consolidated Statements of Changes in Stockholders’ Equity for the ~~nine~~three and six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018	6

	Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018	78

	Notes to Unaudited Consolidated Financial Statements	910

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4549

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	6974

Item 4.	Controls and Procedures	7075

Part II - OTHER INFORMATION

Item 1.	Legal Proceedings	7075

Item 1A.	Risk Factors	7075

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	7178

Item 3.	Defaults Upon Senior Securities	7178

Item 4.	Mine Safety Disclosures	7178

Item 5.	Other Information	7178

Item 6.	Exhibits	7178

SIGNATURES		7379

Exhibits


	September 30, 2018			December 31, 2017			June 30, 2019			December 31, 2018
	(In thousands, except share data)						(In thousands, except share data)
ASSETS
Cash and due from banks	$	48,786		$	56,661		$	67,939		$	36,434
Short-term investments	29,809			32,007			46,807			61,530
Total cash and cash equivalents	78,595			88,668			114,746			97,964
Available-for-sale securities - at fair value	972,035			1,050,787			840,500			973,347
Held-to-maturity securities - at amortized cost	—			13,598
Loans held for sale	86,948			114,073			38,809			78,788
Loans receivable (net of allowance for loan losses of $49,909 at September 30, 2018 and $47,099 at December 31, 2017)	5,495,277			5,307,678
Federal Home Loan Bank of Boston stock	42,032			50,194
Loans receivable (net of allowance for loan losses of $53,206 at June 30, 2019 and $51,636 at December 31, 2018)							5,719,892			5,622,589
Federal Home Loan Bank of Boston stock, at cost							34,335			41,407
Accrued interest receivable	25,485			22,332			24,938			24,823
Deferred tax asset, net	31,473			25,656			27,366			32,706
Premises and equipment, net	67,612			67,508			62,304			68,657
Operating lease right-of-use assets							43,171			—
Finance lease right-of-use assets							4,266			—
Goodwill	115,281			115,281			116,709			116,769
Core deposit intangible	3,561			4,491			5,219			6,027
Cash surrender value of bank-owned life insurance	181,928			148,300			195,993			193,429
Other assets	107,271			105,593			107,707			100,368
Total assets	$	7,207,498		$	7,114,159		$	7,335,955		$	7,356,874

LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Deposits:
Non-interest-bearing	$	759,210		$	778,576		$	843,926		$	799,785
Interest-bearing	4,741,153			4,419,645			4,882,622			4,870,814
Total deposits	5,500,363			5,198,221			5,726,548			5,670,599
Mortgagors’ and investors’ escrow accounts	9,597			7,545			14,541			4,685
Advances from the Federal Home Loan Bank	812,948			1,046,458
Advances from the Federal Home Loan Bank of Boston							651,964			797,271
Other borrowings	113,644			118,596			90,025			102,355
Operating lease liabilities							55,197			—
Finance lease liabilities							4,518			—
Accrued expenses and other liabilities	61,128			50,011			73,140			69,446
Total liabilities	6,497,680			6,420,831			6,615,933			6,644,356

Stockholders’ equity:
Preferred stock (no par value; 2,000,000 authorized; no shares issued)	—			—			—			—
Common stock (no par value; authorized 120,000,000 shares; 51,146,888 and 51,044,752 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively)	539,528			537,576
Common stock (no par value; authorized 120,000,000 shares; 51,094,995 and 51,104,783 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively)							539,604			539,476
Additional paid-in capital	5,121			4,713			3,485			1,933
Unearned compensation - ESOP	(5,295		)	(5,466		)	(5,124		)	(5,238		)
Retained earnings	200,478			168,345			193,781			206,761
Accumulated other comprehensive loss, net of tax	(30,014		)	(11,840		)	(11,724		)	(30,414		)
Total stockholders’ equity	709,818			693,328			720,022			712,518
Total liabilities and stockholders’ equity	$	7,207,498		$	7,114,159		$	7,335,955		$	7,356,874



ý☒		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 ~~for the quarterly period ended September 30, 2018.~~


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,						For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2018			2017			2018			2017			2019			2018			2019			2018
	(In thousands, except share and per share data)												(In thousands, except share and per share data)
Interest and dividend income:
Loans	$	61,061		$	51,809		$	173,799		$	147,976		$	65,650		$	57,958		$	130,414		$	112,738
Securities - taxable interest	5,822			5,604			17,289			16,907			6,117			5,969			12,592			11,467
Securities - non-taxable interest	2,347			2,499			7,130			7,108			644			2,354			1,738			4,783
Securities - dividends	748			736			2,121			2,233			653			736			1,309			1,373
Interest-bearing deposits	213			151			476			303			341			113			566			263
Total interest and dividend income	70,191			60,799			200,815			174,527			73,405			67,130			146,619			130,624
Interest expense:
Deposits	15,767			9,185			39,658			23,607			20,564			12,864			40,495			23,891
Borrowed funds	5,995			4,846			18,004			13,527			5,831			6,085			12,177			12,009
Total interest expense	21,762			14,031			57,662			37,134			26,395			18,949			52,672			35,900
Net interest income	48,429			46,768			143,153			137,393			47,010			48,181			93,947			94,724
Provision for loan losses	2,007			2,566			6,296			7,146			2,472			2,350			4,515			4,289
Net interest income after provision for loan losses	46,422			44,202			136,857			130,247			44,538			45,831			89,432			90,435
Non-interest income:
Service charges and fees	6,623			6,514			19,324			19,343			7,538			6,542			13,723			12,701
(Loss) gain on sales of securities, net	(58		)	158			120			710
Income from mortgage banking activities	1,486			1,204			4,061			4,355
Gain on sales of securities, net													137			62			874			178
(Loss) income from mortgage banking activities													(410		)	846			181			2,575
Bank-owned life insurance income	1,460			1,167			4,777			3,523			1,521			1,671			3,467			3,317
Net loss on limited partnership investments	(221		)	(864		)	(1,771		)	(1,582		)	(7,898		)	(960		)	(8,501		)	(1,550		)
Other income	265			247			693			635
Other (loss) income													(48		)	199			76			428
Total non-interest income	9,555			8,426			27,204			26,984			840			8,360			9,820			17,649
Non-interest expense:
Salaries and employee benefits	22,643			20,005			65,954			59,309			21,923			22,113			44,125			43,311
Service bureau fees	2,209			2,336			6,592			6,959			2,198			2,165			4,235			4,383
Occupancy and equipment	4,487			3,740			14,104			11,866			5,111			4,668			10,651			9,617
Professional fees	1,013			1,048			3,282			3,309			2,414			1,105			3,707			2,269
Marketing and promotions	1,119			1,087			2,993			3,036			782			1,189			1,640			1,874
FDIC insurance assessments	655			780			2,129			2,255			769			735			1,428			1,474
Core deposit intangible amortization	288			337			930			1,075			388			305			808			642
Other	6,529			5,929			18,065			17,704			5,872			6,090			12,050			11,536
Total non-interest expense	38,943			35,262			114,049			105,513			39,457			38,370			78,644			75,106
Income before income taxes	17,034			17,366			50,012			51,718			5,921			15,821			20,608			32,978
Provision for income taxes	726			2,175			2,271			6,601			9,169			175			11,199			1,545
Net income	$	16,308		$	15,191		$	47,741		$	45,117
Net (loss) income													$	(3,248	)	$	15,646		$	9,409		$	31,433

Net income per share:
Net (loss) income per share:
Basic	$	0.32		$	0.30		$	0.94		$	0.90		$	(0.06	)	$	0.31		$	0.19		$	0.62
Diluted	$	0.32		$	0.30		$	0.94		$	0.89		$	(0.06	)	$	0.31		$	0.19		$	0.62
Weighted-average shares outstanding:
Basic	50,624,832			50,263,602			50,535,569			50,246,234			50,620,236			50,504,273			50,617,661			50,489,689
Diluted	51,104,776			50,889,987			51,026,105			50,888,175			50,620,236			50,974,283			50,763,678			50,985,520


	Common Stock					Additional Paid-in Capital				Unearned Compensation - ESOP				Retained Earnings				Accumulated Other Comprehensive Loss				Total Stockholders’ Equity			Six-Month Period Ended June 30, 2019
	Shares		Amount							Unearned Compensation - ESOP			Common Stock									Total Stockholders’ Equity			Additional Paid-in Capital				Unearned Compensation - ESOP				Retained Earnings			Accumulated Other Comprehensive Loss				Total Stockholders’ Equity
	(In thousands, except share data)																								Additional Paid-in Capital			Shares					Retained Earnings		Amount
Balance at December 31, 2017	51,044,752		$	537,576		Additional Paid-in Capital			$	4,713			$	Retained Earnings			(5,466	Accumulated Other Comprehensive Loss	)		$	168,345			$	(11,840	)		Unearned Compensation - ESOP	$	693,328
Adoption of ASU No. 2016-01 (see Note 3)	—		—			—				—				177				(177		)		—
Adoption of ASU No. 2018-02 (see Note 10)	—		—			—				—				2,590				(2,590		)		—
																									(In thousands, except share data)
Balance at December 31, 2018																									51,104,783			$	539,476			$	1,933		$	Accumulated Other Comprehensive Loss		(5,238	)	Total Stockholders’ Equity			$	206,761		$	(30,414	)	$	712,518
Adoption of ASU No. 2017-08 (See Note 3)																									—			—				—			—				(10,187		)	—			(10,187		)
Comprehensive income	—		—			—				—				47,741				(15,407		)		32,334			—			—				—			—				9,409			18,690			28,099
Common stock repurchased	(94,900	)	(1,551		)	—				—				—				—				(1,551		)
Stock-based compensation expense	—		—			2,160				—				—				—				2,160			—			—				1,069			—				—			—			1,069
ESOP shares released or committed to be released	—		—			118				171				—				—				289			—			—				50			114				—			—			164
Shares issued for stock options exercised	203,828		3,520			(1,783		)		—				—				—				1,737			81,909			1,239				(387		)	—				—			—			852
Shares issued for restricted stock grants	8,763		147			(147		)		—				—				—				—			1,483			20				(20		)	—				—			—			—
Shares cancelled for restricted stock forfeitures	(9,698	)	(164		)	164				—				—				—				—
Shares canceled for restricted stock forfeitures																									(74,700	)		(1,131		)		1,131			—				—			—			—
Cancellation of shares for tax withholding	(5,857	)	—			(104		)		—				—				—				(104		)	(18,480	)		—				(291		)	—				—			—			(291		)
Dividends paid ($0.36 per common share)	—		—			—				—				(18,375		)		—				(18,375		)
Balance at September 30, 2018	51,146,888		$	539,528		$	5,121			$	(5,295	)		$	200,478			$	(30,014	)		$	709,818
Dividends paid ($0.24 per common share)																									—			—				—			—				(12,202		)	—			(12,202		)
Balance at June 30, 2019																									51,094,995			$	539,604			$	3,485		$	(5,124	)		$	193,781		$	(11,724	)	$	720,022

Balance at December 31, 2016	50,786,671		$	531,848		$	7,227			$	(5,694	)		$	137,838			$	(15,353	)		$	655,866
																									Three-Month Period Ended June 30, 2019
Balance at March 31, 2019																									51,100,720			$	539,776			$	2,432		$	(5,181	)		$	203,156		$	(16,085	)	$	724,098
Comprehensive income	—		—			—				—				45,117				5,698				50,815			—			—				—			—				(3,248		)	4,361			1,113
Common stock repurchased	(80,000	)	(1,312		)	—				—				—				—				(1,312		)
Stock-based compensation expense	—		—			2,052				—				—				—				2,052			—			—				489			—				—			—			489
ESOP shares released or committed to be released	—		—			125				171				—				—				296			—			—				21			57				—			—			78
Shares issued for stock options exercised	143,149		2,527			(981		)		—				—				—				1,546			30,396			432				(48		)	—				—			—			384
Shares issued for restricted stock grants	3,617		65			(65		)		—				—				—				—			1,483			20				(20		)	—				—			—			—
Shares cancelled for restricted stock forfeitures	(9,242	)	(127		)	127				—				—				—				—
Shares canceled for restricted stock forfeitures																									(37,408	)		(624		)		624			—				—			—			—
Cancellation of shares for tax withholding	(22,804	)	—			(340		)		—				—				—				(340		)	(196	)		—				(13		)	—				—			—			(13		)
Dividends paid ($0.36 per common share)	—		—			—				—				(18,270		)		—				(18,270		)
Balance at September 30, 2017	50,821,391		$	533,001		$	8,145			$	(5,523	)		$	164,685			$	(9,655	)		$	690,653
Dividends paid ($0.12 per common share)																									—			—				—			—				(6,127		)	—			(6,127		)
Balance at June 30, 2019																									51,094,995			$	539,604			$	3,485		$	(5,124	)		$	193,781		$	(11,724	)	$	720,022

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

	For the Nine Months Ended September 30,
	2018			2017
	(In thousands)
Cash flows from operating activities:
Net income	$	47,741		$	45,117
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Amortization of premiums and discounts on investments, net	3,084			3,059
Amortization of intangible assets and purchase accounting marks, net	1,161			1,053
Amortization of subordinated debt issuance costs	95			95
Stock-based compensation expense	2,160			2,052
ESOP expense	289			296
Provision for loan losses	6,296			7,146
Gains on sales of securities, net	(120		)	(710		)
Net unrealized gain on marketable equity securities	(19		)	—
Loans originated for sale	(271,783		)	(292,973		)
Principal balance of loans sold	298,908			266,071
Increase in mortgage servicing asset	(2,667		)	(1,047		)
Gain on sales of other real estate owned	(173		)	(296		)
Net change in mortgage banking fair value adjustments	809			(2,336		)
(Gain) loss on disposal of equipment	68			(42		)
Write-downs of other real estate owned	362			342
Depreciation and amortization of premises and equipment	5,713			4,206
Net loss on limited partnership investments	1,771			1,582
Deferred income tax (benefit) expense	(1,262		)	5,769
Increase in cash surrender value of bank-owned life insurance	(4,342		)	(3,515		)
Income recognized from death benefits on bank-owned life insurance	(435		)	(8		)
Net change in:
Deferred loan fees and premiums	(1,809		)	(3,661		)
Accrued interest receivable	(3,153		)	(2,122		)
Other assets	(17,526		)	(17,644		)
Accrued expenses and other liabilities	11,497			5,297
Net cash provided by operating activities	76,665			17,731
Cash flows from investing activities:
Proceeds from sales of available-for-sale securities	58,653			214,048
Proceeds from calls and maturities of available-for-sale securities	35,790			86,859
Principal payments on available-for-sale securities	50,355			57,234
Principal payments on held-to-maturity securities	—			317
Purchases of available-for-sale securities	(85,557		)	(376,506		)
Redemption of FHLBB and other restricted stock	12,413			10,514
Purchase of FHLBB stock	(4,251		)	(2,179		)
Proceeds from sale of other real estate owned	2,232			1,475
Purchases of loans	(206,217		)	(173,356		)
Loan originations, net of principal repayments	10,657			(135,468		)
Proceeds from bank-owned life insurance death benefits	1,082			12
Purchases of bank-owned life insurance	(30,000		)	—
Proceeds from redemption of bank-owned life insurance	26,292			—
Purchases of premises and equipment	(5,934		)	(14,219		)
Proceeds from sales of equipment	—			707
Net cash used in investing activities	(134,485		)	(330,562		)




	Six-Month Period Ended June 30, 2018
	Common Stock					Additional Paid-in Capital			Unearned Compensation - ESOP			Retained Earnings			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity
	Shares		Amount			Additional Paid-in Capital			Unearned Compensation - ESOP			Retained Earnings			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity
	(In thousands, except share data)
Balance at December 31, 2017	51,044,752		$	537,576		$	4,713		$	(5,466	)	$	168,345		$	(11,840	)	$	693,328
Adoption of ASU No. 2016-01	—		—			—			—			177			(177		)	—
Adoption of ASU No. 2018-02	—		—			—			—			2,590			(2,590		)	—
Comprehensive income	—		—			—			—			31,433			(12,033		)	19,400
Common stock repurchased	(94,900	)	(1,551		)	—			—			—			—			(1,551		)
Stock-based compensation expense	—		—			1,417			—			—			—			1,417
ESOP shares released or committed to be released	—		—			77			114			—			—			191
Shares issued for stock options exercised	172,794		2,973			(1,538		)	—			—			—			1,435
Shares issued for restricted stock grants	8,763		147			(147		)	—			—			—			—
Shares canceled for restricted stock forfeitures	(8,340	)	(139		)	139			—			—			—			—
Cancellation of shares for tax withholding	(5,720	)	—			(102		)	—			—			—			(102		)
Dividends paid ($0.24 per common share)	—		—			$	—		—			(12,241		)	$	—		(12,241		)
Balance at June 30, 2018	51,117,349		$	539,006		$	4,559		$	(5,352	)	$	190,304		$	(26,640	)	$	701,877

	Three-Month Period Ended June 30, 2018
Balance at March 31, 2018	50,976,667		$	536,537		$	5,052		$	(5,409	)	$	180,777		$	(23,957	)	$	693,000
Comprehensive income	—		—			—			—			15,646			(2,683		)	12,963
Stock-based compensation expense	—		—			699			—			—			—			699
ESOP shares released or committed to be released	—		—			39			57			—			—			96
Shares issued for stock options exercised	149,986		2,608			(1,353		)	—			—			—			1,255
Shares canceled for restricted stock forfeitures	(8,340	)	(139		)	139			—			—			—			—
Cancellation of shares for tax withholding	(964	)	—			(17		)	—			—			—			(17		)
Dividends paid ($0.12 per common share)	—		—			—			—			(6,119		)	—			(6,119		)
Balance at June 30, 2018	51,117,349		$	539,006		$	4,559		$	(5,352	)	$	190,304		$	(26,640	)	$	701,877


•	ASU No. 2018-07, Compensation - Stock Compensation (Topic 718): Improvement to Nonemployee Share-Based Payment Accounting


•	ASU No. 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities


•	ASU No. 2018-11, Leases (Topic 842): Targeted Improvements


•	ASU No. 2018-20, Leases (Topic 842): Narrow-Scope Improvements for Lessors


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)									(In thousands)
September 30, 2018
June 30, 2019
Available-for-sale:
Debt securities:
Government-sponsored residential mortgage-backed securities	$	215,541	$	67	$	(8,034	)	$	207,574	$	235,412	$	1,272	$	(304	)	$	236,380
Government-sponsored residential collateralized debt obligations	174,481		—		(4,355		)	170,126		116,142		821		(47		)	116,916
Government-sponsored commercial mortgage-backed securities	28,771		—		(1,579		)	27,192		15,230		574		—			15,804
Government-sponsored commercial collateralized debt obligations	157,592		—		(8,678		)	148,914		149,654		776		(1,261		)	149,169
Asset-backed securities	99,348		321		(731		)	98,938		141,918		411		(789		)	141,540
Corporate debt securities	83,486		49		(3,213		)	80,322		91,952		1,865		(145		)	93,672
Obligations of states and political subdivisions	251,616		397		(13,044		)	238,969		84,970		2,141		(92		)	87,019
Total available-for-sale debt securities	$	1,010,835	$	834	$	(39,634	)	$	972,035	$	835,278	$	7,860	$	(2,638	)	$	840,500



Note 1.	Summary of Significant Accounting Policies



Note 2.	Recent Accounting Pronouncements



December 31, 2017
Available-for-sale:
Debt securities:
Government-sponsored residential mortgage-backed securities	$	235,646	$	779	$	(946	)	$	235,479
Government-sponsored residential collateralized debt obligations	134,652		16		(1,556		)	133,112
Government-sponsored commercial mortgage-backed securities	33,449		7		(201		)	33,255
Government-sponsored commercial collateralized debt obligations	151,035		—		(3,793		)	147,242
Asset-backed securities	166,559		1,253		(673		)	167,139
Corporate debt securities	88,571		1,104		(539		)	89,136
Obligations of states and political subdivisions	249,531		1,436		(5,960		)	245,007
Total debt securities	1,059,443		4,595		(13,668		)	1,050,370
Marketable equity securities, by sector:
Industrial	109		100		—			209
Oil and gas	131		77		—			208
Total marketable equity securities	240		177		—			417
Total available-for-sale securities	$	1,059,683	$	4,772	$	(13,668	)	$	1,050,787
Held-to-maturity:
Debt securities:
Obligations of states and political subdivisions	$	12,280	$	679	$	(88	)	$	12,871
Government-sponsored residential mortgage-backed securities	1,318		111		—			1,429
Total held-to-maturity securities	$	13,598	$	790	$	(88	)	$	14,300



December 31, 2018
Available-for-sale:
Government-sponsored residential mortgage-backed securities	$	208,916	$	—	$	(4,818	)	$	204,098
Government-sponsored residential collateralized debt obligations	172,468		270		(2,019		)	170,719
Government-sponsored commercial mortgage-backed securities	28,694		—		(1,016		)	27,678
Government-sponsored commercial collateralized debt obligations	155,091		—		(6,865		)	148,226
Asset-backed securities	102,371		15		(1,891		)	100,495
Corporate debt securities	86,462		48		(3,280		)	83,230
Obligations of states and political subdivisions	250,593		425		(12,117		)	238,901
Total available-for-sale debt securities	$	1,004,595	$	758	$	(32,006	)	$	973,347



	Available-for-Sale
	Amortized Cost		Fair Value
	(In thousands)
Maturity:
Within 1 year	$	—	$	—
After 1 year through 5 years	13,820		13,564
After 5 years through 10 years	85,884		81,973
After 10 years	235,398		223,754
	335,102		319,291
Government-sponsored residential mortgage-backed securities	215,541		207,574
Government-sponsored residential collateralized debt obligations	174,481		170,126
Government-sponsored commercial mortgage-backed securities	28,771		27,192
Government-sponsored commercial collateralized debt obligations	157,592		148,914
Asset-backed securities	99,348		98,938
Total available-for-sale debt securities	$	1,010,835	$	972,035



	Less Than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
	(In thousands)
June 30, 2019
Available-for-sale:
Government-sponsored residential mortgage-backed securities	$	28,737	$	(74	)	$	66,174	$	(230	)	$	94,911	$	(304	)
Government-sponsored residential collateralized debt obligations	—		—			8,177		(47		)	8,177		(47		)
Government-sponsored commercial collateralized debt obligations	—		—			99,536		(1,261		)	99,536		(1,261		)
Asset-backed securities	50,056		(263		)	33,113		(526		)	83,169		(789		)
Corporate debt securities	6,147		(34		)	7,382		(111		)	13,529		(145		)
Obligations of states and political subdivisions	—		—			14,068		(92		)	14,068		(92		)
Total available-for-sale securities	$	84,940	$	(371	)	$	228,450	$	(2,267	)	$	313,390	$	(2,638	)

December 31, 2018
Available-for-sale:
Government-sponsored residential mortgage-backed securities	$	97,634	$	(1,590	)	$	106,464	$	(3,228	)	$	204,098	$	(4,818	)
Government-sponsored residential collateralized debt obligations	5,093		(54		)	107,291		(1,965		)	112,384		(2,019		)
Government-sponsored commercial mortgage-backed securities	—		—			27,678		(1,016		)	27,678		(1,016		)
Government-sponsored commercial collateralized debt obligations	15,787		(176		)	132,439		(6,689		)	148,226		(6,865		)
Asset-backed securities	62,444		(1,272		)	23,426		(619		)	85,870		(1,891		)
Corporate debt securities	43,937		(1,394		)	33,245		(1,886		)	77,182		(3,280		)
Obligations of states and political subdivisions	89,312		(2,204		)	137,590		(9,913		)	226,902		(12,117		)
Total available-for-sale securities	$	314,207	$	(6,690	)	$	568,133	$	(25,316	)	$	882,340	$	(32,006	)


	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)
September 30, 2018
June 30, 2019
Loans rated 1-5	$	409,023	$	1,860,775	$	107,796	$	816,742	$	1,265,194	$	574,188	$	367,499	$	427,943	$	1,943,854	$	87,531	$	867,018	$	1,287,301	$	568,675	$	437,269
Loans rated 6	9,684		14,001		2,231		29,448		2,614		275		—		18,846		4,590		2,377		31,331		2,594		608		—
Loans rated 7	16,199		14,072		958		14,840		15,318		5,444		2,282		12,859		22,659		2,697		12,124		16,313		6,400		2,144
Loans rated 8	—		—		—		—		—		—		—		—		—		—		—		—		—		—
Loans rated 9	—		—		—		—		—		—		—		—		��		—		—		—		—		—
	$	434,906	$	1,888,848	$	110,985	$	861,030	$	1,283,126	$	579,907	$	369,781	$	459,648	$	1,971,103	$	92,605	$	910,473	$	1,306,208	$	575,683	$	439,413

December 31, 2017
December 31, 2018
Loans rated 1-5	$	423,720	$	1,829,762	$	117,583	$	811,604	$	1,186,753	$	576,592	$	292,386	$	410,403	$	1,884,767	$	104,848	$	844,541	$	1,294,623	$	576,509	$	407,935
Loans rated 6	4,854		10,965		49		15,816		1,948		89		—		17,134		6,544		1,994		28,385		2,429		740		—
Loans rated 7	17,246		13,732		1,398		12,892		15,700		6,499		395		15,861		19,759		1,283		13,844		16,321		6,205		2,314
Loans rated 8	—		—		—		—		—		—		—		—		—		—		—		—		—		—
Loans rated 9	—		—		—		—		—		—		—		—		—		—		—		—		—		—
	$	445,820	$	1,854,459	$	119,030	$	840,312	$	1,204,401	$	583,180	$	292,781	$	443,398	$	1,911,070	$	108,125	$	886,770	$	1,313,373	$	583,454	$	410,249


	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)
September 30, 2018
June 30, 2019
Owner-occupied CRE	$	864	$	733	$	158	$	1,755	$	—	$	1,258	$	122	$	—	$	705	$	827	$	—	$	1,989
Investor CRE	871		171		570		1,612		—		1,525		729		135		633		1,497		—		2,357
Construction	—		—		958		958		—		958		—		—		629		629		—		629
Commercial business loans	1,367		490		1,917		3,774		2		2,756		1,337		711		3,702		5,750		1,913		2,871
Residential real estate	4,454		3,410		9,270		17,134		1,998		14,488		3,965		1,169		8,650		13,784		1,691		15,492
Home equity	2,149		975		3,412		6,536		—		5,415		1,447		512		4,774		6,733		—		6,376
Other consumer	632		190		904		1,726		95		812		683		797		1,009		2,489		161		856
Total	$	10,337	$	5,969	$	17,189	$	33,495	$	2,095	$	27,212	$	8,283	$	3,324	$	20,102	$	31,709	$	3,765	$	30,570

December 31, 2017
December 31, 2018
Owner-occupied CRE	$	1,195	$	455	$	1,297	$	2,947	$	—	$	1,735	$	1,745	$	7	$	352	$	2,104	$	—	$	2,503
Investor CRE	849		92		1,212		2,153		206		1,821		1,306		91		546		1,943		—		1,131
Construction	—		—		1,398		1,398		—		1,398		331		—		913		1,244		—		913
Commercial business loans	1,069		3,465		1,219		5,753		650		4,987		5,455		1,582		2,803		9,840		1,387		2,481
Residential real estate	3,187		2,297		5,633		11,117		—		14,860		11,214		5,216		9,448		25,878		2,004		16,214
Home equity	1,319		498		3,281		5,098		—		6,466		1,498		779		4,349		6,626		—		6,192
Other consumer	947		241		491		1,679		97		395		1,123		359		1,393		2,875		154		1,243
Total	$	8,566	$	7,048	$	14,531	$	30,145	$	953	$	31,662	$	22,672	$	8,034	$	19,804	$	50,510	$	3,545	$	30,677



	For the Three Months Ended June 30, 2019				For the Three Months Ended June 30, 2018
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(In thousands)
Owner-occupied CRE	$	2,452	$	25	$	2,866	$	41
Investor CRE	7,293		94		9,060		93
Construction	816		3		1,497		5
Commercial business loans	8,861		70		4,338		26
Residential real estate	20,180		222		18,918		164
Home equity	8,285		25		8,239		59
Other consumer	1,122		—		459		—
Total	$	49,009	$	439	$	45,377	$	388

	For the Six Months Ended June 30, 2019				For the Six Months Ended June 30, 2018
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized

Owner-occupied CRE	$	2,646	$	49	$	2,677	$	73
Investor CRE	7,160		170		8,845		202
Construction	893		4		1,756		15
Commercial business loans	7,647		109		4,786		78
Residential real estate	20,159		467		18,712		371
Home equity	8,275		56		8,341		137
Other consumer	1,187		1		438		—
	$	47,967	$	856	$	45,555	$	876


	At September 30, 2018		At December 31, 2017		At June 30, 2019		At December 31, 2018
	(In thousands)				(In thousands)
Recorded investment in TDRs:
Accrual status	$	13,286	$	14,249	$	18,980	$	15,208
Non-accrual status	6,706		8,475		5,820		6,971
Total recorded investment in TDRs	$	19,992	$	22,724	$	24,800	$	22,179

Accruing TDRs performing under modified terms more than one year	$	12,504	$	7,783	$	12,823	$	12,609
Specific reserves for TDRs included in the balance of allowance for loan losses	$	85	$	520	$	68	$	213
Additional funds committed to borrowers in TDR status	$	3	$	29	$	3	$	7


	Three Months Ended					Nine Months Ended					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		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)										(Dollars in thousands)
September 30, 2018
June 30, 2019
Commercial business											—	$	—	$	—	5	$	3,512	$	3,512
Residential real estate											1	75		107		2	504		536
Home equity											4	179		182		4	179		182
Total TDRs											5	$	254	$	289	11	$	4,195	$	4,230

June 30, 2018
Construction	—	$	—	$	—	1	$	965	$	965	—	$	—	$	—	1	$	965	$	965
Residential real estate	2	171		173		7	3,061		3,063		1	29		29		5	2,890		2,890
Home equity	2	125		125		8	554		568		2	109		123		6	429		443
Total TDRs	4	$	296	$	298	16	$	4,580	$	4,596	3	$	138	$	152	12	$	4,284	$	4,298

September 30, 2017
Investor CRE	—	$	—	$	—	1	$	5,038	$	5,038
Commercial business	—	—		—		3	247		247
Residential real estate	2	269		269		5	791		791
Home equity	4	822		822		18	2,294		2,301
Total TDRs	6	$	1,091	$	1,091	27	$	8,370	$	8,377



	Three Months Ended June 30,
	2019						2018
	Extended Maturity		Adjusted Rate and Extended Maturity		Other		Extended Maturity		Adjusted Rate and Extended Maturity		Payment Deferral
	(In thousands)
Residential real estate	$	75	$	—	$	—	$	—	$	—	$	29
Home equity	—		179		—		—		109		—
Total	$	75	$	179	$	—	$	—	$	109	$	29

	Six Months Ended June 30,
	2019						2018
	Extended Maturity		Adjusted Rate and Extended Maturity		Other		Extended Maturity		Adjusted Rate and Extended Maturity		Payment Deferral
	(In thousands)
Construction	$	—	$	—	$	—	$	965	$	—	$	—
Commercial business	—		—		3,512		—		—		—
Residential real estate	504		—		—		—		—		2,980
Home equity	—		179		—		61		368		—
	$	504	$	179	$	3,512	$	1,026	$	368	$	2,980



	Three Months Ended September 30,
	2018						2017
	Extended Maturity		Adjusted Rate and Extended Maturity		Payment Deferral		Extended Maturity		Adjusted Rate and Extended Maturity		Payment Deferral		Other
	(In thousands)
Residential real estate	$	11	$	—	$	160	$	—	$	—	$	269	$	—
Home equity	26		99		—		526		296		—		—
Total	$	37	$	99	$	160	$	526	$	296	$	269	$	—

	Nine Months Ended September 30,
	2018						2017
	Extended Maturity		Adjusted Rate and Extended Maturity		Payment Deferral		Extended Maturity		Adjusted Rate and Extended Maturity		Payment Deferral		Other
	(In thousands)
Investor CRE	$	—	$	—	$	—	$	—	$	—	$	—	$	5,038
Construction	965		—		—		—		—		—		—
Commercial business	—		—		—		—		—		—		247
Residential real estate	11		—		3,050		155		220		416		—
Home equity	87		467		—		838		742		714		—
	$	1,063	$	467	$	3,050	$	993	$	962	$	1,130	$	5,285



	Three Months Ended June 30, 2019			Six Months Ended June 30, 2019
	(In thousands)
Operating lease cost	$	1,674		$	3,346

Finance lease cost:
Amortization of right-of-use assets	89			178
Interest on lease liabilities	62			125

Sublease income	(223		)	(445		)
Lease income	(98		)	(197		)

Total lease cost	$	1,504		$	3,007



	June 30, 2019
Weighted Average Remaining Lease Term (in years):
Operating Leases	12.00
Finance Leases	13.00

Weighted Average Discount Rate:
Operating Leases	3.54	%
Finance Leases	5.44	%



	Operating Leases
	(In thousands)
2019 (remaining six months)	$	682
2020	1,391
2021	1,266
2022	841
2023	144
Thereafter	297
Total lease payments receivable	$	4,621



		Core Deposit Intangibles
	(In thousands)
Balance at December 31, 2017		$	4,491
Amortization expense		(1,350		)
Acquisitions		2,886
Balance at December 31, 2018		$	6,027
Amortization expense		(808		)
Balance at June 30, 2019		$	5,219

Estimated amortization expense for the years ending December 31,
2019 (remaining six months)		$	730
2020		1,293
2021		1,048
2022		803
2023		559
2024 and thereafter		786
Total remaining		$	5,219



	Remaining Contractual Maturity of the Agreements
	Overnight		Up to 1 Year		1 - 3 Years		Greater than 3 Years		Total
	(In thousands)
June 30, 2019
Repurchase Agreements
U.S. Agency Securities	$	9,703	$	—	$	—	$	—	$	9,703

December 31, 2018
Repurchase Agreements
U.S. Treasury and Agency Securities	$	8,361	$	10,000	$	—	$	—	$	18,361



	Notional Amount		Weighted-Average Remaining Maturity	Weighted-Average Rate						Estimated Fair Value, Net Asset (Liability)
	Notional Amount		Weighted-Average Remaining Maturity	Received			Paid			Estimated Fair Value, Net Asset (Liability)
	(In thousands)		(In years)							(In thousands)
June 30, 2019
Cash flow hedges:
Interest rate swaps	$	445,000	3.66	2.51	%		2.53	%		$	(12,679	)
Non-hedging derivatives:
Forward loan sale commitments	62,152		0.00							(328		)
Derivative loan commitments	24,035		0.00							430
Interest rate swap	7,500		7.04							(267		)
Loan level swaps - dealer(1)	668,901		6.32	4.24	%		4.12	%		(24,622		)
Loan level swaps - borrowers(1)	668,901		6.32	4.12	%		4.24	%		24,610
Forward starting loan level swaps - dealer(1)	8,000		8.20	TBD		(2)	5.11	%		(430		)
Forward starting loan level swaps - borrower(1)	8,000		8.20	5.11	%		TBD		(2)	430
Total	$	1,892,489								$	(12,856	)

December 31, 2018
Cash flow hedges:
Forward starting interest rate swaps on future borrowings	$	50,000	5.22	TBD		(3)	2.67	%		$	(356	)
Interest rate swaps	395,000		4.02	2.59	%		2.51	%		457
Non-hedging derivatives:
Forward loan sale commitments	85,043		0.00							(681		)
Derivative loan commitments	8,491		0.00							194
Interest rate swap	7,500		7.54							(686		)
Loan level swaps - dealer(1)	640,760		6.88	4.20	%		4.10	%		2,068
Loan level swaps - borrowers(1)	640,760		6.88	4.10	%		4.20	%		(2,074		)
Forward starting loan level swaps - dealer(1)	8,000		8.70	TBD		(2)	5.11	%		(37		)
Forward starting loan level swaps - borrower(1)	8,000		8.70	5.11	%		TBD		(2)	37
Total	$	1,843,554								$	(1,078	)


(1)	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.


(2)	The floating leg of the forward starting loan level hedge is indexed to the one month USD-LIBOR-BBA, as determined one London banking day prior to the tenth day of each calendar month, commencing with the effective trade date on September 10, 2020.


(3)	The receiver leg of the cash flow hedge 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 this forward starting cash flow hedge ~~is November 15,~~was March 20, 2019 for the period ended December 31, 2018.