United Financial Bancorp Q2 net income $9.1 million
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United Financial had net income of $9.1 million, or $0.18 per diluted share, for the quarter ended June 30, 2016, compared to net income for the linked quarter of $11.9 million, or $0.24 per diluted share.
Operating net income (Non-GAAP) for the second quarter of 2016 was $10.0 million, or $0.20 per diluted share, compared to $10.9 million, or $0.22 per diluted share for the linked quarter.
Operating net income for the second quarter of 2016 is adjusted for purchase accounting impacts, net gain from sales of securities and the effect of position eliminations as a result of the Company's previously disclosed reorganization plan.
Additionally, in the first quarter of 2016, operating income was also adjusted for Federal Home Loan Bank of Boston (FHLBB) prepayment penalties. United Financial reported net income of $13.3 million, or $0.27 per diluted share, for the quarter ended June 30, 2015.
Total assets at June 30, 2016 increased by $95.8 million to $6.42 billion from $6.32 billion at March 31, 2016. At June 30, 2016, total loans were $4.73 billion, representing an increase of $81 million, or 2%, from the linked quarter.
Loan growth during the second quarter of 2016 was highlighted by a $58 million, or 9%, increase in commercial business loans, a $14 million, or 3%, increase in home equity loans and an $8 million, or 2%, increase in owner-occupied commercial real estate loans.
Residential mortgages declined during the second quarter of 2016 by $5 million, reflecting the Company's continued strategy to reduce on-balance sheet exposure to residential mortgage loans.
Deposits totaled $4.46 billion at June 30, 2016 and decreased by $79 million, or 2%, from $4.53 billion at March 31, 2016. While deposits declined during the second quarter of 2016, the shift in the deposit mix is reflective of the Company's strategy to focus on low cost core deposit growth.
Noteworthy increases include a $16 million, or 3%, increase in non-interest bearing deposits and a $32 million, or 8% increase in NOW checking deposits. Deposit balances were substantially impacted during the second quarter of 2016 by the seasonal outflows of municipal deposits and to a lesser extent retail money market account outflows were experienced due to the expiration of promotional pricing.
Net interest income decreased by $1.9 million to $41.5 million during the second quarter of 2016 from the linked quarter. Interest income totaled $51.6 million in the second quarter of 2016 and decreased by $2.0 million, or 4%, in comparison to the linked quarter.
This decrease was largely attributable to the reduced benefit of purchase mark accretion as compared to the linked quarter.
Interest expense decreased by $47,000 to $10.1 million during the second quarter of 2016 from $10.2 million in the linked quarter.
As communicated in the prior quarter, the Company planned to grow assets at a slower pace and as a result average interest-earning assets increased slightly by $38.2 million, or 1%, from the linked quarter, and on an operating basis, net interest income was flat at $41.5 million during the second quarter of 2016 as compared to the linked quarter.
The GAAP tax equivalent net interest margin for the second quarter of 2016 decreased by 15 basis points to 2.94% compared to 3.09% for the linked quarter.
The yield on interest-earning assets decreased by 16 basis points in the second quarter of 2016 to 3.63% as compared to the linked quarter, and the cost of total interest bearing liabilities decreased by one basis point to 0.82% in the quarter ending June 30, 2016 from 0.83% in the linked quarter.
The operating net interest margin, which excludes the impact of purchase accounting adjustments, decreased by 1 basis point to 2.94% in the second quarter of 2016 from 2.95% in the linked quarter.
The provision for loan losses increased $936,000, or 35% to $3.6 million for the quarter ended June 30, 2016 compared to $2.7 million for the linked quarter due to continued growth within the commercial loan portfolio.
Net charge-offs for the second quarter of 2016 increased slightly by $88,000 to $1.2 million, or 0.10% annualized as a percentage of average loans outstanding, from $1.1 million, or 0.09% annualized as a percentage of average loans outstanding, in the linked quarter.
Factors considered in the provision for loan losses include, but are not limited to, historical charge-offs, the composition of the portfolio, the current level of non-performing loans and charge-offs, local economic and credit conditions, the direction of real estate values and delinquency trends.
Total non-interest income decreased by $195,000, or 3%, to $6.5 million for the quarter ended June 30, 2016 from $6.7 million in the linked quarter. Operating non-interest income, which excludes the impact of gains on the sales of securities, increased by $890,000 to $6.2 million, or 17%, for the second quarter of 2016.
The increase in the second quarter's operating non-interest income was driven primarily from the $1.5 million increase in mortgage banking income as compared to the linked quarter.
Non-interest expense for the quarter ended June 30, 2016 totaled $34.7 million and increased by $918,000 from the linked quarter, while operating non-interest expense increased by $997,000. Both increased by 3%.
As a result of the reorganization plan, the Company is expected to save approximately $3.0 million (pre-tax) annually.
The only significant variance in operating non-interest expense during the quarter was the $819,000 increase in salaries and employee benefits expense as compared to the linked quarter due primarily to a $537,000 increase in commissions related to revenue growth from the financial advisory line of business and increased retail loan originations, coupled with a $277,000 increase in health insurance expense partially offset by a $268,000 decrease in payroll related taxes.
United Financial's cost structure continues to be favorable with non-interest expense as a percentage of average assets reported at 2.19% and operating non-interest expense as a percentage of average assets reported at 2.08% for the quarter ended June 30, 2016.
Asset quality remained strong and stable. Non-performing assets increased by $2.4 million to $39.5 million at June 30, 2016 from $37.1 million at March 31, 2016. The ratio of non-performing assets to total assets as compared to the linked quarter increased slightly to 0.61% at June 30, 2016 from 0.59% at March 31, 2016.
The allowance for loan losses as a percentage of total covered loans outstanding increased to 1.09% at June 30, 2016 from 1.07% at March 31, 2016. United Financial maintains a disciplined approach to asset quality and will not match extremely favorable pricing or underwriting and structure pressures from competitor banks if those considerations do not meet the Company's asset quality and return standards.
United Financial reported Tangible Common Equity (TCE) of $522.2 million, or 8.25% of average assets, at June 30, 2016.
Tangible book value per share increased to $10.39 at June 30, 2016 from $10.20 at March 31, 2016, primarily due to the impact of the Company's net income of $9.1 million, partially offset by the cash dividend payment to shareholders of $0.12 per share, which reduced shareholders' equity by $6.0 million. Book value per share at June 30, 2016 was $12.81.
The board declared a cash dividend on the Company's common stock of $0.12 per share to shareholders of record at the close of business on July 29, 2016 and payable on August 10, 2016.
This dividend equates to a 3.70% annualized yield based on the $12.97 average closing price of the Company's common stock in the second quarter of 2016. United Financial has paid dividends for 41 consecutive quarters. ■