UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Fiscal
Year Ended December 31, 2010
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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Commission File Number:
001-35028
ROCKVILLE FINANCIAL,
INC.
(Exact name of registrant as
specified in its charter)
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Connecticut
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27-3577029
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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25 Park Street, Rockville, Connecticut
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06066
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(Address of principal executive
offices)
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(Zip Code)
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(860) 291-3600
(Registrants telephone
number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
Securities registered pursuant to Section 12(g) of the
Act: None
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Title of Class
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Name of Each Exchange Where Registered
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Common Stock, no par value
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NASDAQ Global Select Stock Market
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Indicate by check mark whether the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. o Yes. þ
No
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15
(d) of the
Act. o Yes. þ No
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. þ Yes o No
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by checkmark whether the registrant is a shell company
(as defined in
Rule 12B-2
of the
Act). Yes o No þ
The aggregate market value of voting and non-voting common
equity held by non-affiliates of Rockville Financial, Inc. as of
June 30, 2010 was $75.7 million based upon the closing
price of $11.91 as of June 30, 2010, the last business day
of the registrants most recently completed second quarter.
Directors and officers of the Registrant are deemed to be
affiliates solely for the purposes of this calculation.
As of February 28, 2011, there were 19,549,061 shares
of Registrants common stock outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the Registrants definitive proxy statement for
its Annual Meeting of Stockholders, expected to be filed
pursuant to Regulation 14A within 120 days after the
end of the 2010 fiscal year, are incorporated by reference into
Part III of this Report on
Form 10-K.
Rockville
Financial, Inc.
Annual Report on
Form 10-K
For the Fiscal Year Ended December 31, 2010
Table of Contents
2
Part I
This
Form 10-K
contains forward-looking statements that are within the meaning
of the Private Securities Litigation Reform Act of 1995. Such
statements are based upon the current beliefs and expectations
of our management and are subject to significant risks and
uncertainties. These risks and uncertainties could cause our
results to differ materially from those set forth in such
forward-looking statements.
Forward-looking statements can be identified by the fact that
they do not relate strictly to historical or current facts.
Words such as believes, anticipates,
expects, intends, plans,
estimates, targeted and similar
expressions, and future or conditional verbs, such as
will, would, should,
could or may, are intended to identify
forward-looking statements but are not the only means to
identify these statements.
Forward-looking statements involve risks and uncertainties.
Actual conditions, events or results may differ materially from
those contemplated by a forward-looking statement.
Factors that could cause this difference many of
which are beyond our control include without
limitation the following:
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Local, regional and national business or economic conditions may
differ from those expected.
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The effects of and changes in trade, monetary and fiscal
policies and laws, including the U.S. Federal Reserve
Boards interest rate policies, may adversely affect our
business.
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The ability to increase market share and control expenses may be
more difficult than anticipated.
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Changes in laws and regulatory requirements (including those
concerning taxes, banking, securities and insurance) may
adversely affect us or our businesses.
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Changes in accounting policies and practices, as may be adopted
by regulatory agencies, the Public Company Accounting Oversight
Board or the Financial Accounting Standards Board, may affect
expected financial reporting.
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Future changes in interest rates may reduce our profits which
could have a negative impact on the value of our stock.
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We are subject to lending risk and could incur losses in our
loan portfolio despite our underwriting practices. Changes in
real estate values could also increase our lending risk.
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Changes in demand for loan products, financial products and
deposit flow could impact our financial performance.
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Strong competition within our market area may limit our growth
and profitability.
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We may not manage the risks involved in the foregoing as well as
anticipated.
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We recently opened new branches which may not become profitable
as soon as anticipated, if at all.
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If our allowance for loan losses is not sufficient to cover
actual loan losses, our earnings could decrease.
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Our stock value may be negatively affected by federal
regulations restricting takeovers.
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Further implementation of our stock benefit plans could increase
our costs, which could reduce our income.
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Because we intend to continue to increase our commercial real
estate and commercial business loan originations, our lending
risk may increase, and downturns in the real estate market or
local economy could adversely affect our earnings.
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The trading volume in our stock is less than in larger publicly
traded companies which can cause price volatility, hinder your
ability to sell our common stock and may lower the market price
of the stock.
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3
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The Emergency Economic Stabilization Act (EESA) of
2008 has and may continue to have a significant impact on the
banking industry. The Dodd-Frank Wall Street Reform and Consumer
Protection Act was signed into law on July 21, 2010 and is
expected to result in dramatic regulatory changes that will
affect the industry in general, and impact the Companys
competitive position in ways that cant be predicted at
this time.
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Any forward-looking statements made by or on behalf of us in
this
Form 10-K
speak only as of the date of this
Form 10-K.
We do not undertake to update forward-looking statements to
reflect the impact of circumstances or events that arise after
the date the forward-looking statement was made. The reader
should, however, consult any further disclosures of a
forward-looking nature we may make in future filings.
General
Rockville Financial, Inc., (the Company), a
state-chartered bank holding company holds all of the common
stock of Rockville Bank (the Bank). The Federal
Reserve Board regulates the Company. The Company is the
successor through reorganization effective March 3, 2011 to
Rockville Financial, Inc. (Old RFI), a mid-tier
holding company that owned the Bank and which itself was owned
by Rockville Financial MHC, Inc. as majority owner and public
stockholders. When referring to the periods prior to
March 3, 2011, Company shall mean Old RFI.
The Bank is a state-chartered stock savings bank organized in
Connecticut in 1858 that provides a full range of banking
services to consumer and commercial customers through its main
office in Rockville, CT, twenty-one branches located in
Hartford, New London and Tolland Counties in Connecticut and 41
automated teller machines (ATM), including 9
stand-alone ATM facilities. The Bank is regulated by the State
of Connecticut Department of Banking and the Federal Deposit
Insurance Corporation (the FDIC). The Banks
deposits are insured to the maximum allowable under the Deposit
Insurance Fund, which is administered by the Federal Deposit
Insurance Corporation. The Bank is a member of the Federal Home
Loan Bank of Boston (FHLBB).
The Company strives to remain a leader in meeting the financial
service needs of the local community and to provide quality
service to the individuals, families, professionals and
businesses in the market areas it serves. Rockville Bank is a
community-oriented provider of traditional banking products and
services to business organizations and individuals, offering
products such as residential, commercial real estate, commercial
business and consumer loans and a variety of deposit products.
The Companys business philosophy is to remain an
independent, community-oriented franchise and to continue to
focus on providing superior customer service to meet the
financial needs of the communities in which we operate. Current
strategies include expanding our banking network by pursuing new
branch locations and branch acquisition opportunities in our
market area, continuing our residential mortgage lending
activities and expanding our commercial real estate and
commercial business lending activities.
The Company employed 236 full-time equivalent employees at
December 31, 2010. Management of the Company and the Bank
are substantially identical. The Company does not own or lease
any property but instead uses the premises, equipment and
furniture of the Bank.
Competition
We face competition within our market area both in making loans
and attracting deposits. Hartford, New London and Tolland
Counties have a high concentration of financial institutions
including large commercial banks, community banks and credit
unions. Some of our competitors offer products and services that
we currently do not offer, such as trust services and private
banking. As of June 30, 2010, based on the FDICs most
recent annual Summary of Deposits Report, our market share of
deposits represented 25.6% of deposits in Tolland County, the
second largest market share in that county, 1.9% of deposits in
Hartford County and 0.5% of deposits in New London County.
4
Our competition for loans and deposits comes principally from
commercial banks, savings institutions, mortgage banking firms
and credit unions. We face additional competition for deposits
from money market funds, brokerage firms, mutual funds and
insurance companies. Our primary focus is to build and develop
profitable customer relationships across all lines of business
while continuing to support the communities within our service
area.
Market
Area
We operate in a primarily suburban market area that has a stable
population and household base. All of our current offices are
located in Connecticut in Hartford, New London and Tolland
Counties. Our market area is located in the north central part
of Connecticut including, in part, the eastern part of the
greater Hartford metropolitan area. Our main office is located
in Rockville and is located approximately 15 miles from
Hartford. Hartford, New London and Tolland Counties have a mix
of industry groups and employment sectors, including services,
wholesale/retail trade and manufacturing as the basis of the
local economy. Our primary market area for deposits includes the
communities in which we maintain our banking office locations.
Our primary lending area is broader than our primary deposit
market area and includes all of Hartford, New London and
Tolland Counties, and parts of the adjacent Windham and
Middlesex Counties. In addition to our primary lending areas we
have expanded lending activities to include an out of state
regional commercial real estate lending program.
Lending
Activities
Historically, our principal lending activity has been the
origination of first mortgage loans for the purchase or
refinancing of
one-to-four
family residential real estate. As of December 31, 2010,
loans to borrowers engaged in similar activities did not exceed
10% of total loans outstanding. The largest exposure to a
related group was $20.9 million at December 31, 2010.
These loans are performing according to their terms. Our net
deferred loan costs and premiums totaled $523,000 at
December 31, 2010.
The composition of the Banks loan portfolio was as follows
at the dates indicated:
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At December 31,
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2010
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2009
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2008
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2007
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2006
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Amount
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Percent
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Amount
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Percent
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Amount
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Percent
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Amount
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Percent
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Amount
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Percent
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(Dollars in thousands)
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Real estate loans:
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Residential(1)
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$
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719,925
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50.54
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%
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$
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754,838
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54.98
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%
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$
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746,041
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57.26
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%
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$
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666,003
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59.18
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%
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$
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640,076
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61.46
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%
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Commercial
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489,511
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34.37
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426,028
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31.03
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351,474
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26.97
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284,460
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25.28
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232,550
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22.33
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Construction(2)
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78,627
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5.52
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71,078
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5.18
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89,099
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6.84
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70,617
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6.27
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63,902
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6.14
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Commercial business loans
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130,303
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9.15
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113,240
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8.25
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106,684
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8.19
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92,869
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8.25
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97,234
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9.34
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Installment and collateral
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5,921
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0.42
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7,742
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0.56
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9,629
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0.74
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11,469
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1.02
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7,607
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0.73
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Total loans
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1,424,287
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100.00
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%
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1,372,926
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100.00
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%
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1,302,927
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100.00
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%
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1,125,418
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100.00
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%
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1,041,369
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100.00
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%
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Net deferred loan costs and premiuns
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523
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632
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1,417
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1,529
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1,813
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Allowance for loan losses
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(14,312
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(12,539
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(12,553
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(10,620
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(9,827
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Loans, net
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$
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1,410,498
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$
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1,361,019
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$
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1,291,791
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$
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1,116,327
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$
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1,033,355
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(1) |
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Residential mortgage loans include
one-to-four
family mortgage loans, home equity loans, and home equity lines
of credit. Residential mortgage loans held for sale were
$380,000 at December 31, 2010 and are not included above.
There were no loans held for sale at December 31, 2009. |
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(2) |
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Construction loans include commercial and residential loans and
are reported net of undisbursed construction funds of
$87.5 million, $86.5 million, $93.9 million,
$96.8 million and $93.6 million as of
December 31, 2010, 2009, 2008, 2007 and 2006, respectively. |
Residential Mortgage Loans: One of our primary
lending activities consists of the origination of
one-to-four
family residential mortgage loans that are primarily secured by
properties located in Hartford, New London and Tolland
Counties. Of the $719.9 million
one-to-four
family residential mortgage loans at
5
December 31, 2010, $53.4 million were fixed rate home
equity loans and $136.6 million consisted of balances
outstanding on home equity lines of credit. Generally,
one-to-four
family residential mortgage loans are originated in amounts up
to 80% of the lesser of the appraised value or purchase price of
the property, with private mortgage insurance required on loans
with a
loan-to-value
ratio in excess of 80%. We usually do not make loans with a
loan-to-value
ratio in excess of 97% for loans secured by single-family homes.
Fixed rate mortgage loans generally are originated for terms of
10, 15, 20, 25 and 30 years. Typically, all fixed rate
residential mortgage loans are underwritten according to Federal
Home Loan Mortgage Corporation (Freddie Mac)
policies and procedures. Fixed rate residential mortgage loans
are periodically sold in the secondary market. We will usually
retain the servicing rights for all loans that we sell in the
secondary market. We originated $83.6 million of fixed rate
one-to-four
family residential loans during the year ended December 31,
2010, $71.1 million of which were sold in the secondary
market.
We also offer adjustable-rate mortgage loans for
one-to-four
family properties, with an interest rate which adjusts annually
based on the one-year Constant Maturity Treasury Bill Index,
after either a one-, three-, four-, five-, seven-, or nine-year
initial fixed rate period. We originated $83.9 million of
adjustable rate
one-to-four
family residential loans during the year ended December 31,
2010. Our adjustable rate mortgage loans generally provide for
maximum rate adjustments of 200 basis points per
adjustment, with a lifetime maximum adjustment up to 6%,
regardless of the initial rate. Our adjustable rate mortgage
loans amortize over terms of up to 30 years.
Adjustable rate mortgage loans decrease the risk associated with
changes in market interest rates by periodically repricing, but
involve other risks because, as interest rates increase, the
underlying payments by the borrower increase, thus increasing
the potential for default by the borrower. At the same time, the
marketability of the underlying collateral may be adversely
affected by higher interest rates. Upward adjustment of the
contractual interest rate is also limited by the maximum
periodic and lifetime interest rate adjustments permitted by our
loan documents and, therefore, the effectiveness of adjustable
rate mortgage loans may be limited during periods of rapidly
rising interest rates. Of our
one-to-four
family residential loans, $156.7 million, or 29.6%, had
adjustable rates of interest at December 31, 2010 and
$70.6 million of these loans will see a rate reset in the
next twelve months. Continued declines in real estate values and
the slow down in the housing market may make it more difficult
for borrowers experiencing financial difficulty to sell their
homes or refinance their debt due to their declining collateral
values.
In an effort to provide financing for low and moderate income
home buyers, we offer a first time home buyer program at reduced
rates and favorable closing costs. This program allows the first
time home buyer to borrow with lower down payment requirements,
lower origination points, and reduced fees. These loans are
offered with adjustable rates of interest at terms of up to
30 years. Such loans are secured by
one-to-four
family residential properties. All of these loans are originated
using government agency underwriting guidelines.
All residential mortgage loans that we originate include
due-on-sale
clauses, which give us the right to declare a loan immediately
due and payable in the event that, among other things, the
borrower sells or otherwise disposes of the real property. We
also require homeowners insurance and, where circumstances
warrant, flood insurance on properties securing real estate
loans. At December 31, 2010, our largest residential
mortgage loan had a principal balance of $1.1 million. This
loan is performing in accordance with its repayment terms.
We also offer home equity loans and home equity lines of credit,
both of which are secured by owner-occupied
one-to-four
family residences. At December 31, 2010, home equity loans
and equity lines of credit totaled $190.0 million, or
13.3%, of total loans. At December 31, 2010, the unadvanced
amounts of home equity lines of credit totaled
$143.9 million. The underwriting standards utilized for
home equity loans and home equity lines of credit include a
determination of the applicants credit history, an
assessment of the applicants ability to meet existing
obligations and payments on the proposed loan and the value of
the collateral securing the loan. Home equity loans are offered
with fixed rates of interest and with terms up to 15 years.
The
loan-to-value
ratio for our home equity loans and lines of credit is generally
limited to no more than 90%. Our home equity lines of credit
have ten year terms and adjustable rates of interest which are
6
indexed to the prime rate, as reported in The Wall Street
Journal. Interest rates on home equity lines of credit are
generally limited to a maximum rate of 18% per annum.
Commercial Real Estate Loans: We originate
commercial real estate loans and loans on owner- occupied
properties used for a variety of business purposes including
small office buildings, industrial facilities and retail
facilities. These projects are generally located in our primary
market area. At December 31, 2010, commercial mortgage
loans totaled $489.5 million, or 34.4%, of total loans. Our
commercial real estate underwriting policies provide that
typically such real estate loans may be made in amounts of up to
80% of the appraised value of the property provided such loan
complies with our current
loans-to-one
borrower limit. Our commercial real estate loans may be made
with terms of up to 20 years and amortization schedules up
to 30 years and are offered with interest rates that are
fixed or adjust periodically and are generally indexed to the
Federal Home Loan Bank of Boston Classic Advance Rates. In
reaching a decision on whether to make a commercial real estate
loan, we consider gross revenues and the net operating income of
the property, the borrowers expertise, business cash flow
and credit history, and the appraised value of the underlying
property. In addition, with respect to commercial real estate
rental properties, we will also consider the terms and
conditions of the leases and the credit quality of the tenants.
We typically require that the properties securing these real
estate loans have debt service coverage ratios (the ratio of
earnings before interest, taxes, depreciation and amortization
divided by interest expense and current maturities of long term
debt) of at least 1.15 times. Environmental surveys are
generally required for commercial real estate loans. Generally,
commercial real estate loans made to corporations, partnerships
and other business entities require personal guarantees by the
principals and owners of 20% or more of the entity.
A commercial borrowers financial information is monitored
on an ongoing basis by requiring periodic financial statement
updates, payment history reviews and typically includes periodic
face-to-face
meetings with the borrower. We generally require commercial
borrowers to provide updated financial statements and federal
tax returns annually. These requirements also apply to all
guarantors on commercial loans. We also require borrowers with
rental investment property to provide an annual report of income
and expenses for the property, including a tenant list and
copies of leases, as applicable. The largest commercial real
estate loan to a single borrower as of December 31, 2010
was $18.9 million, which was performing according to its
terms.
Loans secured by commercial real estate, including multi-family
properties, generally involve larger principal amounts and a
greater degree of risk than
one-to-four
family residential mortgage loans. Because payments on loans
secured by commercial real estate, including multi-family
properties, are often dependent on successful operation or
management of the properties, repayment of such loans may be
affected by adverse conditions in the real estate market or the
economy.
Commercial Construction Loans: We offer
commercial construction loans including real estate subdivision
development loans to licensed contractors and builders for the
construction and development of commercial real estate projects
and
one-to-four
family residential properties. At December 31, 2010,
commercial construction loans totaled $70.1 million, which
amounted to 4.9% of total loans outstanding. At
December 31, 2010, the unadvanced portion of these
construction loans totaled $84.3 million. Our commercial
real estate underwriting policies provide that typically such
real estate loans may be made in amounts of up to 80% of the
appraised value of the property provided such loan complies with
our current
loans-to-one
borrower limit. We extend loans to residential subdivision
developers for the purpose of land acquisition, the development
of infrastructure and the construction of homes. Advances are
determined as a percentage of cost or appraised value (whichever
is less) and the project is physically inspected prior to each
advance. We typically limit the numbers of model homes financed
by a customer, with the majority of construction advances
supported by purchase contracts. As of December 31, 2010,
the largest outstanding commercial construction loan commitment
to a single borrower totaled $14.9 million with
$14.1 million of advances drawn as of December 31,
2010, which were performing according to their terms. Commercial
real estate subdivision loans, commercial real estate and
one-to-four
family residential loans to contractors entails significant
additional risks as compared with single-family residential
mortgage lending to owner-occupants. These loans typically
involve large loan balances concentrated in single borrowers or
groups of related borrowers. A continued economic downturn could
have an additional adverse impact on the value of the properties
securing
7
construction loans and on the borrowers ability to sell
the units for the amounts necessary to complete the project and
repay the loans.
Residential Construction Loans: We originate
construction loans to individuals and contractors for the
construction and acquisition of personal residences. At
December 31, 2010, residential construction mortgage loans
amounted to $8.5 million, or 0.6%, of total loans. At
December 31, 2010, the unadvanced portion of these
construction loans totaled $3.3 million.
Our residential construction mortgage loans generally provide
for the payment of interest only during the construction phase,
which is typically up to nine months although our policy is to
consider construction periods as long as 12 months. At the
end of the construction phase, the construction loan converts to
a long-term owner-occupied residential mortgage loan.
Construction loans can be made with a maximum
loan-to-value
ratio of 80%. At December 31, 2010, our largest residential
construction mortgage loan commitment was for $940,000, $608,000
of which had been disbursed. This loan is performing according
to its terms. Construction loans to individuals are generally
made on the same terms as our
one-to-four
family mortgage loans.
Before making a commitment to fund a residential construction
loan, we require an appraisal of the property by an independent
licensed appraiser. We also review and inspect each property
before disbursement of funds during the term of the construction
loan. Loan proceeds are disbursed after inspection based on the
percentage of completion method.
Construction financing is generally considered to involve a
higher degree of credit risk than longer-term financing on
improved, owner-occupied real estate. Risk of loss on a
construction loan depends largely upon the accuracy of the
initial estimate of the value of the property at completion of
construction compared to the actual cost (including interest) of
construction and other assumptions. If the estimate of
construction cost is too low, we may be required to advance
funds beyond the amount originally committed in order to protect
the value of the property. Additionally, if the estimate of
value is too high, we may be confronted with a project, when
completed, with a value that is insufficient to assure full
payment. Construction lending contains a unique risk
characteristic as loans are originated under market and economic
conditions that may change between the time of origination and
the completion and subsequent purchaser financing of the
property.
Commercial Business Loans: At
December 31, 2010, we had $130.3 million in commercial
business loans, of which $21.7 million were guaranteed by
either the Small Business Administration (SBA) or
the United States Department of Agriculture (USDA).
We occasionally purchase USDA guaranteed loans in the secondary
loan market from various experienced brokers. These loans carry
a variable rate and adjust on a quarterly basis using the prime
rate as the base index. There is no risk of loss of principal or
accrued interest up to loan payment dates, as we only purchase
the guaranteed portion of the loan. The guarantee is that of the
full faith and credit of the United States of America. We
determine the loans to be purchased based on net yield, borrower
credit rating, size and the business segment composition of the
existing portfolio. Monthly payments are received directly from
the original lending institution. As of December 31, 2010,
of the $21.7 million guaranteed loans, $2.1 million
are SBA loans originated by us and $19.6 million were
purchased and are fully guaranteed by the USDA. In addition to
the SBA and USDA loans, our commercial business loan portfolio
at December 31, 2010 included $40.4 million in
revolving business lines of credit with an additional
$60.6 million of unused lines of credit commitments and
$68.2 million in commercial business term loans. Total
commercial business loans amounted to 9.2% of total loans as of
December 31, 2010.
We make commercial business loans primarily in our market area
to a variety of professionals, sole proprietorships and small
businesses. Commercial business lending products include term
loans and revolving lines of credit. The maximum amount of a
commercial business loan is limited by our
loans-to-one-borrower
limit (15% of equity capital and our allowance for loan losses,
pursuant to Connecticut law) to which there were no exceptions
as of December 31, 2010. Such loans are generally used for
longer-term working capital purposes such as purchasing
equipment or financing short term cash needs. Commercial
business loans are made with either adjustable or fixed rates of
interest. Variable rates are based on the prime rate, as
published in The Wall Street Journal, plus a margin.
Fixed rate commercial loans are set at a margin above the
Federal Home Loan Bank of Boston Classic Advance Rates.
8
When making commercial business loans, we consider the financial
statements of the borrower, our lending history with the
borrower, the debt service capabilities of the borrower, the
projected cash flows of the business and the value of the
collateral. Commercial business loans are generally secured by a
variety of collateral, primarily accounts receivable, inventory
and equipment, and are supported by personal guarantees.
Depending on the collateral used to secure the loans, commercial
business loans are typically made up to 80% of the value of the
loan collateral. We do not typically make unsecured commercial
business loans greater than $100,000.
Commercial business loans generally have greater credit risk
than residential mortgage loans. Unlike residential mortgage
loans, which generally are made on the basis of the
borrowers ability to make repayment from his or her
employment or other income, and which are secured by real
property whose value tends to be more easily ascertainable,
commercial business loans generally are made on the basis of the
borrowers ability to repay the loan from the cash flow of
the borrowers business. As a result, the availability of
funds for the repayment of commercial business loans may depend
substantially on the success of the business itself. Further,
any collateral securing the loans may depreciate over time, may
be difficult to appraise and may fluctuate in value. We seek to
minimize these risks through our underwriting standards. At
December 31, 2010, our largest commercial business loan
commitment totaled $20.9 million with $15.5 million of
advances drawn as of December 31, 2010, which were
performing according to their terms. In addition to the
commercial business loans discussed above, we had
$10.4 million in outstanding letters of credit as of
December 31, 2010.
Installment and Collateral Loans: We offer a
limited range of installment and collateral consumer loans,
principally to customers residing in our primary market area
with acceptable credit ratings. Our installment and collateral
consumer loans generally consist of loans on new and used
automobiles, including indirect automobile loans, loans
collateralized by deposit accounts and unsecured personal loans.
Installment and collateral consumer loans totaled
$5.9 million or 0.4% of our total loan portfolio at
December 31, 2010. This portfolio includes
$1.9 million of fully secured collateral loans,
$3.2 million of direct and indirect auto loans and $791,000
of other consumer unsecured loans. While the asset quality of
these portfolios is currently good, there is increased risk
associated with auto and consumer loans during economic
downturns as increased unemployment and inflationary costs may
make it more difficult for some borrowers to repay their loans.
Origination, Purchasing and Servicing of
Loans: All loans originated by us are
underwritten pursuant to our policies and procedures. We
originate both adjustable rate and fixed rate loans. Our ability
to originate fixed or adjustable rate loans is dependent upon
the relative customer demand for such loans, which is affected
by the current and expected future level of interest rates.
Generally, we retain in our portfolio all loans that we
originate, however, for strategic reasons, including our
interest rate risk management objectives; we periodically sell
fixed rate residential mortgage loans which conform to the
underwriting standards specified by Freddie Mac. We also sell
all mortgage loans insured by the Connecticut Housing Finance
Authority (CHFA). All
one-to-four
family loans that we sell are sold pursuant to master
commitments negotiated with Freddie Mac and are sold on a
non-recourse basis. Historically, in such instances, our loans
have been typically sold to either Federal National Mortgage
Association (Fannie Mae) or Freddie Mac, and we have
retained the rights to service those loans. We currently have no
reason to believe our practices will change in the near future.
Depending on interest rate levels at the time of any such sale,
loans may be sold at either a net gain or a net loss.
Additionally, there is no guarantee we will be able to reinvest
the proceeds from any future loan sales at interest rates
comparable to the interest rates on the loans that are sold.
Reinvestment in loans with lower interest rates would result in
lower interest income on the reinvested proceeds compared to the
interest income previously generated by the loans that were sold.
At December 31, 2010, the Company was servicing loans sold
in the amount of $120.5 million. Loan servicing includes
collecting and remitting loan payments, accounting for principal
and interest, contacting delinquent mortgagees, supervising
foreclosures and property dispositions in the event of
unremedied defaults, making certain insurance and tax payments
on behalf of the borrowers and generally administering the loans.
9
Loan
Maturity Schedule
The following table sets forth the loan maturity schedule at
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans Maturing
|
|
|
|
|
|
|
After One
|
|
|
|
|
|
|
|
|
|
Within One
|
|
|
But Within
|
|
|
After Five
|
|
|
|
|
|
|
Year
|
|
|
Five Years
|
|
|
Years
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential(1)
|
|
$
|
2,297
|
|
|
$
|
38,535
|
|
|
$
|
679,093
|
|
|
$
|
719,925
|
|
Commercial
|
|
|
20,488
|
|
|
|
103,607
|
|
|
|
365,416
|
|
|
|
489,511
|
|
Construction
|
|
|
17,912
|
|
|
|
15,510
|
|
|
|
45,205
|
|
|
|
78,627
|
|
Commercial business loans
|
|
|
37,467
|
|
|
|
50,531
|
|
|
|
42,305
|
|
|
|
130,303
|
|
Installment and collateral
|
|
|
265
|
|
|
|
3,667
|
|
|
|
1,989
|
|
|
|
5,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
78,429
|
|
|
$
|
211,850
|
|
|
$
|
1,134,008
|
|
|
$
|
1,424,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
Contractually Due Subsequent to December 31, 2010
The following table sets forth the scheduled repayments of fixed
and adjustable rate loans at December 31, 2010 that are
contractually due after December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due After December 31, 2011
|
|
|
|
Fixed
|
|
|
Adjustable
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential(1)
|
|
$
|
425,473
|
|
|
$
|
292,155
|
|
|
$
|
717,628
|
|
Commercial
|
|
|
205,483
|
|
|
|
263,540
|
|
|
|
469,023
|
|
Construction
|
|
|
49,879
|
|
|
|
10,836
|
|
|
|
60,715
|
|
Commercial business loans
|
|
|
43,919
|
|
|
|
48,917
|
|
|
|
92,836
|
|
Installment and collateral
|
|
|
5,656
|
|
|
|
|
|
|
|
5,656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
730,410
|
|
|
$
|
615,448
|
|
|
$
|
1,345,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Residential mortgage loans include
one-to-four
family mortgage loans, home equity loans, and home equity lines
of credit. |
Loan Approval Procedures and Authority: The
Companys lending activities follow written,
non-discriminatory, underwriting standards and loan origination
procedures established by the Banks Board of Directors.
The loan approval process is intended to assess the
borrowers ability to repay the loan, the viability of the
loan, and the adequacy of the value of the property that will
secure the loan, if applicable. To assess the borrowers
ability to repay, we review the employment and credit history
and information on the historical and projected income and
expenses of borrowers.
The Companys policies and loan approval limits are
established by the Banks Board of Directors. The Board of
Directors has designated lending authority based on officer
level and loan type to a limited group of officers to approve
loans of various amounts up to $500,000. The President, the
Executive Vice President and the Senior Vice President,
Commercial Banking Officer can approve loans for up to and
including $1.5 million. Loans over $1.5 million up to
$5.0 million are approved by the Board of Directors
Lending Committee. Loans above $5.0 million must be
approved by the Board of Directors.
Non-performing and Problem Assets: Delinquency
notices are mailed monthly to all delinquent borrowers, advising
them of the amount of their delinquency. When a loan becomes
more than 30 days delinquent, the Bank sends a letter
advising the borrower of the delinquency. The borrower is given
30 days to pay the delinquent payments or to contact the
Bank to make arrangements to bring the loan current over a
longer period of time. If the borrower fails to bring the loan
current within 90 days from the original due date or to
10
make arrangements to cure the delinquency over a longer period
of time, the matter is referred to legal counsel and foreclosure
or other collection proceedings are started. We may consider
forbearance in select cases where a temporary loss of income is
the primary cause of the delinquency, if a reasonable plan is
presented by the borrower to cure the delinquency in a
reasonable period of time after his or her income resumes.
All non-commercial mortgage loans are reviewed on a regular
basis, and such loans are placed on non-accrual status when they
become more than 90 days delinquent. Commercial real estate
and commercial business loans are evaluated for non-accrual
status on a
case-by-case
basis, but are typically placed on a non-accrual status when
they become more than 90 days delinquent. When loans are
placed on non-accrual status, unpaid accrued interest is
reversed, and further income is recognized only to the extent
received. For the year ended December 31, 2010, $343,000 of
interest income related to non-accrual loans was received
compared to $250,000 for 2009.
Classified Assets: Under our internal risk
rating system, we currently classify loans and other assets
considered to be of lesser quality as substandard,
doubtful, loss or impaired
assets. An asset is considered substandard if it is
inadequately protected by either the current net worth or the
paying capacity of the obligor or by the collateral pledged, if
any. Substandard assets include those characterized
by the distinct possibility that the institution will sustain
some loss if the deficiencies are not corrected. Assets
classified as doubtful have all of the weaknesses
inherent in those classified substandard, with the
added characteristic that the weaknesses present make collection
or liquidation in full, on the basis of currently existing
facts, conditions, and values, highly questionable and
improbable. Assets classified as loss are those
considered uncollectible and of such little value that their
continuance as assets without the establishment of a specific
loss reserve is not warranted. Assets that are individually
reviewed for impairment are those that exhibit elevated risk
characteristics that differentiate themselves from the
homogeneous loan categories including certain loans classified
as substandard, doubtful or loss.
The loan portfolio is reviewed on a regular basis to determine
whether any loans require risk classification or
reclassification. Not all classified assets constitute
non-performing assets.
11
Loan
Delinquencies
The following table sets forth certain information with respect
to our loan portfolio delinquencies at the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans Delinquent For
|
|
|
|
|
|
|
|
|
|
60-89 Days
|
|
|
90 Days and Over
|
|
|
Total
|
|
|
|
Number
|
|
|
Amount
|
|
|
Number
|
|
|
Amount
|
|
|
Number
|
|
|
Amount
|
|
|
|
(Dollars in thousands)
|
|
|
At December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential(1)
|
|
|
15
|
|
|
$
|
1,634
|
|
|
|
24
|
|
|
$
|
2,952
|
|
|
|
39
|
|
|
$
|
4,586
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
2,347
|
|
|
|
3
|
|
|
|
2,347
|
|
Construction
|
|
|
2
|
|
|
|
187
|
|
|
|
6
|
|
|
|
2,646
|
|
|
|
8
|
|
|
|
2,833
|
|
Commercial business loans
|
|
|
2
|
|
|
|
119
|
|
|
|
5
|
|
|
|
445
|
|
|
|
7
|
|
|
|
564
|
|
Installment and collateral
|
|
|
1
|
|
|
|
4
|
|
|
|
3
|
|
|
|
34
|
|
|
|
4
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
20
|
|
|
$
|
1,944
|
|
|
|
41
|
|
|
$
|
8,424
|
|
|
|
61
|
|
|
$
|
10,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential(1)
|
|
|
11
|
|
|
$
|
2,072
|
|
|
|
17
|
|
|
$
|
1,970
|
|
|
|
28
|
|
|
$
|
4,042
|
|
Commercial
|
|
|
1
|
|
|
|
421
|
|
|
|
5
|
|
|
|
2,242
|
|
|
|
6
|
|
|
|
2,663
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
6,630
|
|
|
|
7
|
|
|
|
6,630
|
|
Commercial business loans
|
|
|
3
|
|
|
|
220
|
|
|
|
3
|
|
|
|
61
|
|
|
|
6
|
|
|
|
281
|
|
Installment and collateral
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
15
|
|
|
$
|
2,713
|
|
|
|
32
|
|
|
$
|
10,903
|
|
|
|
47
|
|
|
$
|
13,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential(1)
|
|
|
9
|
|
|
$
|
1,237
|
|
|
|
14
|
|
|
$
|
1,685
|
|
|
|
23
|
|
|
$
|
2,922
|
|
Commercial
|
|
|
2
|
|
|
|
652
|
|
|
|
2
|
|
|
|
1,202
|
|
|
|
4
|
|
|
|
1,854
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
3,021
|
|
|
|
4
|
|
|
|
3,021
|
|
Commercial business loans
|
|
|
3
|
|
|
|
923
|
|
|
|
2
|
|
|
|
372
|
|
|
|
5
|
|
|
|
1,295
|
|
Installment and collateral
|
|
|
3
|
|
|
|
47
|
|
|
|
2
|
|
|
|
11
|
|
|
|
5
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
17
|
|
|
$
|
2,859
|
|
|
|
24
|
|
|
$
|
6,291
|
|
|
|
41
|
|
|
$
|
9,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Residential mortgage loans include
one-to-four
family mortgage loans, home equity loans, and home equity lines
of credit. |
12
Non-performing Assets: The table below sets
forth the amounts and categories of our non-performing assets at
the dates indicated. Once a loan is 90 days delinquent or
either the borrower or the loan collateral experiences an event
that makes collectibility suspect, the loan is placed on
non-accrual status. Company policy requires six
months of continuous payments in order for the loan to be
removed from non-accrual status.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
Non-accrual loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential(1)
|
|
$
|
4,638
|
|
|
$
|
3,106
|
|
|
$
|
2,607
|
|
|
$
|
407
|
|
|
$
|
422
|
|
Commercial
|
|
|
2,675
|
|
|
|
2,242
|
|
|
|
2,726
|
|
|
|
74
|
|
|
|
311
|
|
Construction
|
|
|
2,646
|
|
|
|
6,630
|
|
|
|
4,385
|
|
|
|
|
|
|
|
|
|
Commercial business loans
|
|
|
714
|
|
|
|
61
|
|
|
|
334
|
|
|
|
692
|
|
|
|
114
|
|
Installment and collateral
|
|
|
34
|
|
|
|
7
|
|
|
|
11
|
|
|
|
5
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-accrual loans (2)
|
|
|
10,707
|
|
|
|
12,046
|
|
|
|
10,063
|
|
|
|
1,178
|
|
|
|
855
|
|
Other accruing loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78
|
|
Troubled debt restructurings
|
|
|
1,653
|
|
|
|
|
|
|
|
372
|
|
|
|
391
|
|
|
|
560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans
|
|
|
12,360
|
|
|
|
12,046
|
|
|
|
10,435
|
|
|
|
1,569
|
|
|
|
1,493
|
|
Other real estate owned
|
|
|
990
|
|
|
|
3,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets
|
|
$
|
13,350
|
|
|
$
|
15,107
|
|
|
$
|
10,435
|
|
|
$
|
1,569
|
|
|
$
|
1,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans to total loans
|
|
|
0.87
|
%
|
|
|
0.88
|
%
|
|
|
0.80
|
%
|
|
|
0.14
|
%
|
|
|
0.14
|
%
|
Total non-performing assets to total assets
|
|
|
0.80
|
%
|
|
|
0.96
|
%
|
|
|
0.68
|
%
|
|
|
0.12
|
%
|
|
|
0.12
|
%
|
|
|
|
(1) |
|
Residential mortgage loans include
one-to-four
family mortgage loans, home equity loans, and home equity lines
of credit. |
|
(2) |
|
The amount of income that was contractually due but not
recognized on non-accrual loans totaled $677,000 and $233,000
for the years ended December 31, 2010 and 2009,
respectively. |
Potential problem loans: 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 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. Typically, loans risk rated
Substandard or more severe are transferred to the Special Assets
area. All special mention, substandard and doubtful loans are
included on the Companys watchlist which is
updated quarterly. See Item 7 Managements
Discussion and Analysis of Financial Condition and Results of
Operation for further discussion of non-performing assets.
The Company closely monitors the watchlist for signs of
deterioration to mitigate the growth in non-accrual loans. At
December 31, 2010, watchlist loans totaled
$58.9 million, of which $46.5 million are not
considered impaired.
Allowance
for Loan Losses
Rockville Bank maintains an allowance for loan losses to reflect
the level of loss inherent in the loan portfolio. The assessment
of loss is comprised of an evaluation of homogeneous loan pools,
a specific analysis of loans that are impaired in order to
assess the value of the underlying collateral or future cash
flows in determining the amount of estimated loss and a general,
unallocated pool. In 2007, the Bank adopted certain changes to
the ALLL methodology in order to conform to the Interagency
Policy Statement on the Allowance
13
for Loan and Lease Losses that was published by federal bank
regulatory agencies in December 2006. At December 31, 2006,
the unallocated allowance totaled $1.6 million and
decreased to $838,000 at December 31, 2007 as the revised
methodology resulted in a more precise allocation based on the
risk analysis by homogeneous loan type. Continued refinement of
the methodology is primarily responsible for the subsequent
decreases in the unallocated amount to $209,000 at
December 31, 2009 and to $126,000 at December 31, 2010.
General Reserve: Homogenous loan pools are
determined by loan type and are comprised of:
1) residential first mortgages, 2) commercial real
estate mortgages, 3) construction loans and smaller loans
pools consisting of installment and collateral loans. Each of
these loan types is evaluated on a quarterly basis to determine
historical loss rates; delinquency; growth and composition
trends within the portfolio; the impact of management and
underwriting changes; shifts in risk ratings; and regional and
economic conditions influencing portfolio performance with
management allocating loss factors based on these evaluations.
Specific Reserve: Loans displaying risk
characteristics that differentiate themselves from the
homogeneous pool are tested separately for impairment. These
loans include those in non-accrual status, troubled debt
restructured loans or loans for which collection according to
contractual terms is not probable. Individual evaluations of
cash flow or the fair value of collateral supporting these
obligations is performed in order to determine the most probable
level of loss or impairment. Based on this analysis, specific
reserves are assigned to the impaired loan and are incorporated
in the calculation of the allowance for loan losses.
Unallocated Reserve: The unallocated component
is maintained to cover uncertainties that could effect
managements estimate of probable losses and reflects the
margin of imprecision inherent in the underlying assumptions
used in the methodologies for estimating specific and general
losses. The unallocated allowance decreased to $126,000 as of
December 31, 2010 from $209,000 as of December 31,
2009.
Review of Credit Quality: At the time of loan
origination, a risk rating based on a nine point grading system
is assigned to each loan based on the loan officers
assessment of risk. More complex loans, such as commercial
business loans and commercial real estate, require that our
internal independent credit area further evaluate the risk
rating of the individual loan, with the credit area 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
borrowers and economic conditions warrant. The credit
quality of the Companys loan portfolio is reviewed by a
third party risk assessment firm and by the Companys
internal credit management function. Review findings are
reported periodically to senior management, the Board Lending
Committee and the Board of Directors. This process is
supplemented with several risk assessment tools including
monitoring of delinquency levels, analysis of historical loss
experience by loan type, identification of portfolio
concentrations by borrower and industry, and a review of
economic conditions that might impact loan quality. Based on
these findings the allowance for each loan type is evaluated.
The allowance for loan losses is calculated on a quarterly basis
and reported to the Board of Directors.
Any loan that is 90 or more days delinquent is placed on
non-accrual and classified as a non-performing asset. A loan is
classified as impaired when it is probable that the Company will
be unable to collect all amounts due in accordance with the
terms of the loan agreement. An allowance is maintained for
impaired loans to reflect the difference, if any, between the
principal balance of the loan and the present value of projected
cash flows, observable fair value or the loans collateral
value, if collateral dependent. In addition, the Companys
regulatory agencies periodically review the adequacy of the
allowance for loan losses as part of their review and
examination processes. The regulatory agencies may require that
the Company recognize additions to the allowance based on their
judgments of information available to them at the time of their
review or examination.
Each quarter, management, in conjunction with the Board Lending
Committee, evaluates the total balance of the allowance for loan
losses based on several factors some of which are not loan
specific, but are reflective of the inherent losses in the loan
portfolio. This process includes, but is not limited to, a
periodic review of loan collectability in light of historical
experience, the nature and volume of loan activity, conditions
that may affect the ability of the borrower to repay, underlying
value of collateral, if applicable, and economic
14
conditions in our immediate market area. First, loans are
grouped by type within each risk weighting classification
status. All impaired loans are evaluated individually, based
primarily on the value of the collateral securing the loan and
the ability of the borrower to repay as agreed.
Specific loan loss allowances are established as required by
this analysis. All non-impaired loans are segregated by loan
type, delinquency status or loan risk rating grade and a loss
allowance is established by using loss experience data and
managements judgment concerning other matters it considers
significant including the current economic environment. The
allowance is allocated to each category of loan based on the
results of the above analysis.
This analysis process is both quantitative and subjective, as it
requires management to make estimates that are susceptible to
revisions as more information becomes available. Although we
believe that we have established the allowance at levels to
absorb probable losses, future additions may be necessary if
economic or other conditions in the future differ from the
current environment.
Schedule
of Allowance for Loan Losses
The following table sets forth activity in the allowance for
loan losses for the years indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or for the Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
Balance at beginning of year
|
|
$
|
12,539
|
|
|
$
|
12,553
|
|
|
$
|
10,620
|
|
|
$
|
9,827
|
|
|
$
|
8,675
|
|
Provision for loan losses
|
|
|
4,109
|
|
|
|
1,961
|
|
|
|
2,393
|
|
|
|
749
|
|
|
|
1,681
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate(1)
|
|
|
(1,951
|
)
|
|
|
(1,471
|
)
|
|
|
(257
|
)
|
|
|
(21
|
)
|
|
|
(45
|
)
|
Commercial business loans
|
|
|
(391
|
)
|
|
|
(593
|
)
|
|
|
(314
|
)
|
|
|
(76
|
)
|
|
|
(498
|
)
|
Installment and collateral
|
|
|
(34
|
)
|
|
|
(49
|
)
|
|
|
(50
|
)
|
|
|
(76
|
)
|
|
|
(78
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs
|
|
|
(2,376
|
)
|
|
|
(2,113
|
)
|
|
|
(621
|
)
|
|
|
(173
|
)
|
|
|
(621
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate(1)
|
|
|
11
|
|
|
|
8
|
|
|
|
9
|
|
|
|
5
|
|
|
|
5
|
|
Commercial business loans
|
|
|
10
|
|
|
|
114
|
|
|
|
122
|
|
|
|
191
|
|
|
|
70
|
|
Installment and collateral
|
|
|
19
|
|
|
|
16
|
|
|
|
30
|
|
|
|
21
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries
|
|
|
40
|
|
|
|
138
|
|
|
|
161
|
|
|
|
217
|
|
|
|
92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (charge-offs) recoveries
|
|
|
(2,336
|
)
|
|
|
(1,975
|
)
|
|
|
(460
|
)
|
|
|
44
|
|
|
|
(529
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance at end of year
|
|
$
|
14,312
|
|
|
$
|
12,539
|
|
|
$
|
12,553
|
|
|
$
|
10,620
|
|
|
$
|
9,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses to non-performing loans at end of year
|
|
|
115.79
|
%
|
|
|
104.09
|
%
|
|
|
120.30
|
%
|
|
|
676.86
|
%
|
|
|
658.20
|
%
|
Allowance for loan losses to total loans outstanding at end of
year
|
|
|
1.00
|
%
|
|
|
0.91
|
%
|
|
|
0.96
|
%
|
|
|
0.94
|
%
|
|
|
0.94
|
%
|
Net charge-offs to average loans outstanding
|
|
|
0.17
|
%
|
|
|
0.15
|
%
|
|
|
0.04
|
%
|
|
|
0.00
|
%
|
|
|
0.05
|
%
|
|
|
|
(1) |
|
Real estate loans include
one-to-four
family residential mortgage loans, home equity loans, home
equity lines of credit, commercial real estate and construction
loans. |
Allocation of Allowance for Loan Losses: The
following table sets forth the allowance for loan losses
allocated by loan category, the percent of allowance in each
category to total allowance, and the percent of loans in each
category to total loans at the dates indicated. The allowance
for loan losses allocated to each
15
category is not necessarily indicative of future losses in any
particular category and does not restrict the use of the
allowance to absorb losses in other categories.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
% of
|
|
|
% of Loans
|
|
|
|
|
|
% of
|
|
|
% of Loans
|
|
|
|
|
|
% of
|
|
|
% of Loans
|
|
|
|
Allowance
|
|
|
Allowance
|
|
|
in Category
|
|
|
Allowance
|
|
|
Allowance
|
|
|
in Category
|
|
|
Allowance
|
|
|
Allowance
|
|
|
in Category
|
|
|
|
for Loan
|
|
|
for Loan
|
|
|
to Total
|
|
|
for Loan
|
|
|
for Loan
|
|
|
to Total
|
|
|
for Loan
|
|
|
for Loan
|
|
|
to Total
|
|
|
|
Losses
|
|
|
Losses
|
|
|
Loans
|
|
|
Losses
|
|
|
Losses
|
|
|
Loans
|
|
|
Losses
|
|
|
Losses
|
|
|
Loans
|
|
|
|
(Dollars in thousands)
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential(1)
|
|
$
|
4,644
|
|
|
|
32.45
|
%
|
|
|
50.54
|
%
|
|
$
|
4,243
|
|
|
|
33.84
|
%
|
|
|
54.97
|
%
|
|
$
|
3,952
|
|
|
|
31.48
|
%
|
|
|
57.26
|
%
|
Commercial
|
|
|
5,469
|
|
|
|
38.21
|
%
|
|
|
34.37
|
|
|
|
4,662
|
|
|
|
37.18
|
|
|
|
31.03
|
|
|
|
3,978
|
|
|
|
31.69
|
|
|
|
26.97
|
|
Construction
|
|
|
2,331
|
|
|
|
16.29
|
%
|
|
|
5.52
|
|
|
|
1,490
|
|
|
|
11.88
|
|
|
|
5.18
|
|
|
|
1,925
|
|
|
|
15.33
|
|
|
|
6.84
|
|
Commercial business loans
|
|
|
1,653
|
|
|
|
11.55
|
%
|
|
|
9.15
|
|
|
|
1,832
|
|
|
|
14.61
|
|
|
|
8.25
|
|
|
|
2,180
|
|
|
|
17.37
|
|
|
|
8.19
|
|
Installment and collateral
|
|
|
89
|
|
|
|
0.62
|
%
|
|
|
0.42
|
|
|
|
103
|
|
|
|
0.82
|
|
|
|
0.57
|
|
|
|
306
|
|
|
|
2.44
|
|
|
|
0.74
|
|
Unallocated allowance
|
|
|
126
|
|
|
|
0.88
|
%
|
|
|
|
|
|
|
209
|
|
|
|
1.67
|
|
|
|
|
|
|
|
212
|
|
|
|
1.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance for loan losses
|
|
$
|
14,312
|
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
$
|
12,539
|
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
$
|
12,553
|
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
% of
|
|
|
% of Loans
|
|
|
|
|
|
% of
|
|
|
% of Loans
|
|
|
|
Allowance
|
|
|
Allowance
|
|
|
in Category
|
|
|
Allowance
|
|
|
Allowance
|
|
|
in Category
|
|
|
|
for Loan
|
|
|
for Loan
|
|
|
to Total
|
|
|
for Loan
|
|
|
for Loan
|
|
|
to Total
|
|
|
|
Losses
|
|
|
Losses
|
|
|
Loans
|
|
|
Losses
|
|
|
Losses
|
|
|
Loans
|
|
|
|
(Dollars in thousands)
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential(1)
|
|
$
|
2,673
|
|
|
|
25.17
|
%
|
|
|
59.18
|
%
|
|
$
|
1,051
|
|
|
|
10.70
|
%
|
|
|
61.46
|
%
|
Commercial
|
|
|
3,387
|
|
|
|
31.89
|
|
|
|
25.28
|
|
|
|
4,241
|
|
|
|
43.16
|
|
|
|
22.33
|
|
Construction
|
|
|
1,285
|
|
|
|
12.10
|
|
|
|
6.27
|
|
|
|
959
|
|
|
|
9.76
|
|
|
|
6.14
|
|
Commercial business loans
|
|
|
2,102
|
|
|
|
19.79
|
|
|
|
8.25
|
|
|
|
1,959
|
|
|
|
19.93
|
|
|
|
9.34
|
|
Installment and collateral
|
|
|
335
|
|
|
|
3.16
|
|
|
|
1.02
|
|
|
|
55
|
|
|
|
0.56
|
|
|
|
0.73
|
|
Unallocated allowance
|
|
|
838
|
|
|
|
7.89
|
|
|
|
|
|
|
|
1,562
|
|
|
|
15.89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance for loan losses
|
|
$
|
10,620
|
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
$
|
9,827
|
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
Activities
The Companys Chief Financial Officer is responsible for
implementing its Investment Policy. The Investment Policy is
reviewed annually by management and any changes to the policy
are recommended to and are subject to the approval of the Asset
Liability Committee, and subsequently the Board of Directors.
Authority to make investments under the approved Investment
Policy guidelines is delegated by the Board to the Investment
Committee, comprised of the President and Chief Executive
Officer, the Executive Vice President in charge of lending, the
Chief Financial Officer, the Treasury Officer and the Vice
President of Information Technology. While general investment
strategies are developed and authorized by the Investment
Committee, the execution of specific actions rests with the
President and Chief Financial Officer who may act jointly or
severally. In addition, two other officers under the supervision
of the Chief Financial Officer have execution authority that is
limited to cash management transactions. The Chief Financial
Officer is responsible for ensuring that the guidelines and
requirements included in the Investment Policy are followed and
that all securities are considered prudent for investment.
In addition, the Company utilizes the services of an independent
investment advisor to assist in managing the investment
portfolio. The investment advisor is responsible for maintaining
current information regarding securities dealers with whom the
Company is conducting business. A list of appropriate dealers is
provided at least annually to the Board of Directors for
approval and authorization, and new securities dealers are
approved prior to the execution of trades. The investment
advisor, through its assigned portfolio manager, must
16
contact the Investment Committee to review all investment
recommendations and transactions and receive approval from the
Committee prior to execution of any transaction.
The Companys Investment Policy requires that all
securities transactions be conducted in a safe and sound manner.
Investment decisions must be based upon a thorough analysis of
each security instrument to determine its credit quality and fit
within our overall asset/liability management objectives, its
effect on our risk-based capital and the overall prospects for
yield and/or
appreciation.
Investment Securities Portfolio: The following
table sets forth the carrying values of our available for sale
securities portfolio at the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
Amortized
|
|
|
|
|
|
Amortized
|
|
|
|
|
|
Amortized
|
|
|
|
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
|
Available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and government-sponsored enterprise obligations
|
|
$
|
35,018
|
|
|
$
|
34,327
|
|
|
$
|
7,017
|
|
|
$
|
7,052
|
|
|
$
|
2,031
|
|
|
$
|
2,048
|
|
Government-sponsored residential mortgage- backed securities
|
|
|
67,047
|
|
|
|
70,390
|
|
|
|
72,537
|
|
|
|
75,967
|
|
|
|
117,517
|
|
|
|
120,395
|
|
Corporate debt securities
|
|
|
5,895
|
|
|
|
4,008
|
|
|
|
5,879
|
|
|
|
4,656
|
|
|
|
4,831
|
|
|
|
4,887
|
|
Other debt securities
|
|
|
|
|
|
|
|
|
|
|
722
|
|
|
|
731
|
|
|
|
725
|
|
|
|
739
|
|
Marketable equity securities
|
|
|
11,282
|
|
|
|
16,722
|
|
|
|
10,509
|
|
|
|
14,345
|
|
|
|
10,678
|
|
|
|
13,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available for sale
|
|
$
|
119,242
|
|
|
$
|
125,447
|
|
|
$
|
96,664
|
|
|
$
|
102,751
|
|
|
$
|
135,782
|
|
|
$
|
141,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the year ended December 31, 2010, the Company
recorded no
other-than-temporary
impairment charges. The Company will continue to review its
entire portfolio for
other-than-temporarily
impaired securities with additional attention being given to
high risk securities such as the one pooled trust preferred
security that the Company owns.
During the year ended December 31, 2009, the Company
recorded an
other-than-temporary
impairment charge of $65,000 related to one mutual fund. The
charge for the impairment was computed using the closing price
of the security as of the date of impairment. The Companys
remaining investment in this mutual fund was $1.4 million
with a $55,000 unrealized gain at December 31, 2009. During
the year ended December 31, 2009, the Company recorded an
other-than-temporary
impairment charge of $297,000 related to five common stock
securities. The charge for the impairment was computed using the
closing price of the securities as of the date of impairment.
The Companys remaining investment in these five common
stock securities was $648,000 with a net $133,000 unrealized
loss at December 31, 2009.
The Company implemented new accounting guidance during the year
ended December 31, 2009 which was applied to existing debt
securities held by the Company as of December 31, 2008. For
those debt securities for which the fair value of the security
is less than its amortized cost and the Company does not intend
to sell such security and it is not more likely than not that
the Company will be required to sell such security prior to the
recovery of its amortized cost basis less any credit losses, the
credit component of the
other-than-temporary
impairment losses is recognized in earnings while the non-credit
component is recognized in other comprehensive income, net of
related taxes. As a result, the Company reclassified the
non-credit component of the
other-than-temporary
impairment loss previously recognized in earnings during 2008
for two corporate debt securities GE Capital
Corporation and PRETSL XXVIII. The reclassification was
reflected as a cumulative effect adjustment of $1.0 million
($1.6 million before taxes) that increased retained
earnings and increased accumulated other comprehensive loss. The
amortized cost basis of these debt securities for which
other-than-temporary
impairment losses were recognized during 2008 were adjusted by
the amount of the cumulative effect adjustment before taxes.
During the year ended December 31, 2008, the Company
recorded an
other-than-temporary
impairment charge of $11.6 million related to the preferred
stock of Freddie Mac and Fannie Mae as a result of actions
17
taken in the third quarter of 2008 to place those agencies into
conservatorship. The Companys remaining investment in
these securities was $283,000 with no unrealized gain or loss at
December 31, 2008. During the year ended December 31,
2008, the Company recorded an
other-than-temporary
impairment charge of $1.1 million related to one AAA rated
pooled trust preferred security. The charge for the impairment
was based on a Level 3 price for the pooled trust preferred
security as of the date of the impairment. The Companys
remaining investment in this pooled trust preferred security was
$1.8 million. During the year ended December 31, 2008,
we recorded an
other-than-temporary
impairment charge of $587,000 related to one mutual fund. The
charge for the impairment was computed using the closing price
of the security as of the date of the impairment. The
Companys remaining investment in this mutual fund was
$1.7 million with no unrealized gain or loss at
December 31, 2008. During the year ended December 31,
2008, we recorded an
other-than-temporary
impairment charge of $493,000 related to one AAA rated corporate
debt security. The charge for the impairment was computed using
the closing price of the security as of the date of the
impairment. The Companys remaining investment in this
corporate debt security was $2.4 million with no unrealized
gain or loss at December 31, 2008. During the year ended
December 31, 2008, we recorded an
other-than-temporary
impairment charge of $1.1 million related to eleven common
stock securities. The charge for the impairment was computed
using the closing prices of the securities as of the date of the
impairment.
Consistent with our overall business and asset/liability
management strategy, which focuses on sustaining adequate levels
of core earnings, all securities purchased were classified
available for sale during the year ended December 31, 2010.
U.S. Government and Government-Sponsored Enterprises:
At December 31, 2010, the Companys
U.S. Government and government-sponsored enterprise
portfolio totaled $34.3 million, all of which were
classified as available for sale. There were no structured notes
or derivatives in the portfolio.
Government-Sponsored Enterprise Residential Mortgage-Backed
Securities: The Company purchases mortgage-backed securities
insured or guaranteed by U.S. Government agencies and
government-sponsored entities, including Fannie Mae, Freddie Mac
and Ginnie Mae. We invest in mortgage-backed securities to
achieve positive interest rate spreads with minimal
administrative expense, and lower our credit risk as a result of
the guarantees provided by Fannie Mae, Freddie Mac, and Ginnie
Mae.
Mortgage-backed securities are created by the pooling of
mortgages and the issuance of a security with an interest rate
which is less than the interest rate on the underlying
mortgages. Mortgage-backed securities typically represent a
participation interest in a pool of single-family or
multi-family mortgages, although we focus our investments on
mortgage-backed securities backed by
one-to-four
family mortgages. The issuers of such securities pool and resell
the participation interests in the form of securities to
investors such as the Company and guarantee the payment of
principal and interest to investors. Mortgage-backed securities
generally yield less than the loans that underlie such
securities because of the cost of payment guarantees, mortgage
servicing and credit enhancements. However, mortgage-backed
securities are usually more liquid than individual mortgage
loans and may be used to collateralize the Companys
borrowing obligations.
At December 31, 2010, the carrying value of mortgage-backed
securities totaled $84.1 million, or 5.0% of assets and
5.3% of interest-earning assets, $70.4 million of which
were classified as available for sale and $13.7 million of
which were classified as held to maturity. At December 31,
2010, 18.6% of the mortgage-backed securities were backed by
adjustable rate loans and 81.4% were backed by fixed rate
mortgage loans. The available for sale mortgage-backed
securities portfolio had a book yield of 4.67% at
December 31, 2010 and the held to maturity mortgage-backed
securities portfolio had a book yield of 5.36% at
December 31, 2010. The estimated fair value of our
mortgage-backed securities at December 31, 2010 was
$85.0 million, which is $4.3 million more than the
amortized cost of $80.7 million. Investments in
mortgage-backed securities involve a risk that actual
prepayments may differ from estimated prepayments over the life
of the security, which may require adjustments to the
amortization of any premium or accretion of any discount
relating to such instruments, thereby changing the net yield on
such securities. There is also reinvestment risk associated with
the cash flows from such securities. In addition, the market
value of such securities may be adversely affected by changes in
interest rates.
18
The Companys investment portfolio contained no
mortgage-backed securities that are subject to the risk of
sub-prime
lending as of December 31, 2010. Though the Company does
not have a direct exposure to
sub-prime
related assets, the value and related income of the
Companys mortgage-backed securities are sensitive to
changes in economic conditions, including delinquencies
and/or
defaults on the underlying mortgages. Though the Company has not
been adversely impacted by recent events affecting the mortgage
industry, continuing shifts in the markets perception of
credit quality on securities backed by residential mortgage
loans may result in increased volatility of market price and
periods of illiquidity that can negatively impact the valuation
of certain securities held by the Company.
Corporate Bonds: At December 31, 2010,
the carrying value of the Companys corporate bond
portfolio totaled $4.0 million, all of which was classified
as available for sale. The corporate bond portfolio reprices
quarterly to LIBOR and had a book yield of 0.69% at
December 31, 2010. Although corporate bonds may offer
higher yields than U.S. Treasury or agency securities of
comparable duration, corporate bonds also have a higher risk of
default due to possible adverse changes in the credit-worthiness
of the issuer. In order to mitigate this risk, our Investment
Policy requires that corporate debt obligation purchases be
rated A or better by a nationally recognized rating
agency. A security that is subsequently downgraded below
investment grade will require additional analysis of credit
worthiness and a determination will be made to hold or dispose
of the investment.
Other Debt Securities: These securities
consist primarily of obligations issued by states, counties and
municipalities or their agencies and include general obligation
bonds, industrial development revenue bonds and other revenue
bonds. The Companys Investment Policy requires that such
state agency or municipal obligation purchases be rated
A or better by a nationally recognized rating
agency. A security that is subsequently downgraded below
investment grade will require additional analysis of credit
worthiness and a determination will be made to hold or dispose
of the investment.
Marketable Equity Securities: We currently
maintain a diversified equity securities portfolio. At
December 31, 2010, the fair value of the Companys
marketable equity securities portfolio totaled
$16.7 million, or 1.0% of total assets, all of which were
classified as available for sale. The portfolio consisted of
$13.6 million of diversified common stock,
$0.3 million of preferred stock issued by
government-sponsored entities and $2.8 million of mutual
funds. At December 31, 2010, the market value of the
largest security by a single issuer was $3.3 million. The
industries represented by our common stock investments are
diverse and include banking, insurance and financial services,
integrated utilities and various industrial sectors. Our
investments in preferred stock consisted of investments in two
government-sponsored enterprises, and the maximum investment in
any single issuer was $151,800. The total equity portfolio does
not exceed 100% of the Tier I capital of the Bank.
Investments in equity securities involve risk as they are not
insured or guaranteed investments and are affected by stock
market fluctuations. Such investments are carried at their
market value and can directly affect our net capital position.
Bank-Owned
Life Insurance
The Company owned $10.5 million of Bank-Owned Life
Insurance (BOLI) at December 31, 2010. These
policies were purchased in 2003 and 2004 for the purpose of
protecting Rockville Bank against the cost/loss due to the death
of key employees and to offset Rockville Banks future
obligations to its employees under various retirement and
benefit plans.
Portfolio Maturities and Yields: The
composition and maturities of the investment securities
portfolio at December 31, 2010 are summarized in the
following table. Maturities are based on the final contractual
payment dates, and do not reflect the impact of prepayments or
early redemptions that may occur. State agency and municipal
obligations as well as common and preferred stock yields have
not been adjusted to a tax-equivalent basis. Certain
mortgage-backed securities have interest rates that are
adjustable and will reprice
19
annually within the various maturity ranges. These repricing
schedules are not reflected in the table below. At
December 31, 2010, mortgage-backed securities with
adjustable rates totaled $15.8 million.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
More than One Year
|
|
|
More than Five Years
|
|
|
|
|
|
|
|
|
|
One Year or Less
|
|
|
Through Five Years
|
|
|
Through Ten Years
|
|
|
More than Ten Years
|
|
|
Total Securities
|
|
|
|
|
|
|
Wighted-
|
|
|
|
|
|
Wighted-
|
|
|
|
|
|
Wighted-
|
|
|
|
|
|
Wighted-
|
|
|
|
|
|
Wighted-
|
|
|
|
Fair
|
|
|
Average
|
|
|
Fair
|
|
|
Average
|
|
|
Fair
|
|
|
Average
|
|
|
Fair
|
|
|
Average
|
|
|
Fair
|
|
|
Average
|
|
|
|
Value
|
|
|
Yield
|
|
|
Value
|
|
|
Yield
|
|
|
Value
|
|
|
Yield
|
|
|
Value
|
|
|
Yield
|
|
|
Value
|
|
|
Yield
|
|
|
|
(Dollars in thousands)
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and government-sponsored enterprise obligations
|
|
$
|
3,017
|
|
|
|
0.21
|
%
|
|
$
|
11,880
|
|
|
|
2.35
|
%
|
|
$
|
19,430
|
|
|
|
2.01
|
%
|
|
$
|
|
|
|
|
|
%
|
|
$
|
34,327
|
|
|
|
1.97
|
%
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
1,921
|
|
|
|
4.38
|
|
|
|
9,559
|
|
|
|
3.87
|
|
|
|
58,910
|
|
|
|
4.81
|
|
|
|
70,390
|
|
|
|
4.67
|
|
Corporate debt securities
|
|
|
100
|
|
|
|
4.91
|
|
|
|
2,958
|
|
|
|
0.40
|
|
|
|
|
|
|
|
|
|
|
|
950
|
|
|
|
0.85
|
|
|
|
4,008
|
|
|
|
0.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
$
|
3,117
|
|
|
|
0.36
|
%
|
|
$
|
16,759
|
|
|
|
2.24
|
%
|
|
$
|
28,989
|
|
|
|
2.62
|
%
|
|
$
|
59,860
|
|
|
|
4.75
|
%
|
|
$
|
108,725
|
|
|
|
3.67
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable equity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
125,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sources
of Funds:
General: Deposits have traditionally been the
Companys primary source of funds for use in lending and
investment activities. In addition to deposits, funds are
derived from scheduled loan payments, investment maturities,
loan prepayments, retained earnings and income on earning
assets. See Item 7 Managements
Discussion and Analysis of Financial Condition and Results of
Operation Liquidity and Capital Resources.
Deposits: A majority of our depositors are
persons who work or reside in Hartford, New London and Tolland
Counties and, to a lesser extent, other northeastern Connecticut
communities. We offer a selection of deposit instruments,
including checking, savings, money market savings accounts,
negotiable order of withdrawal (NOW) accounts and
fixed-rate time deposits. Deposit account terms vary, with the
principal differences being the minimum balance required, the
amount of time the funds must remain on deposit and the interest
rate. The Company had $8.8 million brokered deposits at
December 31, 2010, through participation in CDARS
reciprocal deposit program. The Company did not have any
borrowings from deposit brokers at December 31, 2010.
Interest rates paid, maturity terms, service fees and withdrawal
penalties are established on a periodic basis. Deposit rates and
terms are based primarily on current operating strategies,
market rates, liquidity requirements, rates paid by competitors
and growth goals. To attract and retain deposits, we rely upon
personalized customer service, long-standing relationships and
competitive interest rates.
The flow of deposits is influenced significantly by general
economic conditions, changes in money market and other
prevailing interest rates and competition. The variety of
deposit accounts that we offer allows us to be competitive in
obtaining funds and responding to changes in consumer demand.
Based on historical experience, management believes our deposits
are relatively stable. Expansion of the branch network and the
commercial banking division, as well as deposit promotions and
disintermediation from investment firms due to increasing
uncertainty in the financial markets, has provided the Company
with opportunities to attract new deposit relationships.
It is unclear whether the recent growth in deposits will reflect
our historical, stable experience with deposit customers. The
ability to attract and maintain money market accounts and time
deposits, and the rates paid on these deposits, has been and
will continue to be significantly affected by market conditions.
At December 31, 2010, $543.8 million, or 44.6%, of our
deposit accounts were time deposits, of which
$369.4 million had maturities of one year or less.
20
The following table displays a summary of the Companys
deposits as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
Wighted-
|
|
|
|
|
|
|
|
|
Wighted-
|
|
|
|
|
|
|
|
|
Wighted-
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
Balance
|
|
|
Percent
|
|
|
Yield
|
|
|
Balance
|
|
|
Percent
|
|
|
Yield
|
|
|
Balance
|
|
|
Percent
|
|
|
Yield
|
|
|
|
(Dollars in thousands)
|
|
|
Deposit type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
$
|
168,736
|
|
|
|
13.9
|
%
|
|
|
0.00
|
%
|
|
$
|
150,484
|
|
|
|
13.3
|
%
|
|
|
0.00
|
%
|
|
$
|
116,113
|
|
|
|
11.1
|
%
|
|
|
0.00
|
%
|
NOW accounts
|
|
|
117,325
|
|
|
|
9.6
|
|
|
|
0.29
|
|
|
|
108,099
|
|
|
|
9.6
|
|
|
|
0.34
|
|
|
|
86,943
|
|
|
|
8.4
|
|
|
|
0.43
|
|
Regular savings
|
|
|
162,090
|
|
|
|
13.3
|
|
|
|
0.33
|
|
|
|
143,601
|
|
|
|
12.7
|
|
|
|
0.30
|
|
|
|
121,527
|
|
|
|
11.7
|
|
|
|
0.60
|
|
Money market and investment savings
|
|
|
227,007
|
|
|
|
18.6
|
|
|
|
0.52
|
|
|
|
234,737
|
|
|
|
20.8
|
|
|
|
0.65
|
|
|
|
188,110
|
|
|
|
18.0
|
|
|
|
1.78
|
|
Club accounts
|
|
|
272
|
|
|
|
|
|
|
|
2.04
|
|
|
|
247
|
|
|
|
|
|
|
|
2.04
|
|
|
|
227
|
|
|
|
|
|
|
|
2.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total core accounts
|
|
|
675,430
|
|
|
|
55.4
|
|
|
|
0.32
|
|
|
|
637,168
|
|
|
|
56.4
|
|
|
|
0.36
|
|
|
|
512,920
|
|
|
|
49.2
|
|
|
|
0.87
|
|
Time deposits
|
|
|
543,830
|
|
|
|
44.6
|
|
|
|
1.92
|
|
|
|
491,940
|
|
|
|
43.6
|
|
|
|
2.29
|
|
|
|
529,588
|
|
|
|
50.8
|
|
|
|
3.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
1,219,260
|
|
|
|
100.0
|
%
|
|
|
1.01
|
%
|
|
$
|
1,129,108
|
|
|
|
100.0
|
%
|
|
|
1.20
|
%
|
|
$
|
1,042,508
|
|
|
|
100.0
|
%
|
|
|
2.24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010, the aggregate amount of
outstanding time deposits in amounts greater than or equal to
$100,000 was $217.3 million. The following table sets forth
the maturity of those time deposits as of December 31, 2010.
|
|
|
|
|
|
|
(In thousands)
|
|
|
Three months or less
|
|
$
|
27,980
|
|
Over three months through six months
|
|
|
22,275
|
|
Over six months through one year
|
|
|
94,587
|
|
Over one year through three years
|
|
|
53,924
|
|
Over three years
|
|
|
18,508
|
|
|
|
|
|
|
Total
|
|
$
|
217,274
|
|
|
|
|
|
|
The following table sets forth the time deposits classified by
interest rate as of the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Interest Rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
0.00% 1.00%
|
|
$
|
129,405
|
|
|
$
|
56,155
|
|
|
$
|
1,987
|
|
1.01% 2.00%
|
|
|
255,896
|
|
|
|
204,712
|
|
|
|
632
|
|
2.01% 3.00%
|
|
|
87,706
|
|
|
|
101,412
|
|
|
|
132,356
|
|
3.01% 4.00%
|
|
|
41,323
|
|
|
|
82,360
|
|
|
|
296,257
|
|
4.01% 5.00%
|
|
|
26,343
|
|
|
|
42,259
|
|
|
|
87,475
|
|
5.01% 6.00%
|
|
|
3,157
|
|
|
|
5,042
|
|
|
|
10,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
543,830
|
|
|
$
|
491,940
|
|
|
$
|
529,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
The following table sets forth the amounts and maturities of
time deposits at December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
|
|
|
|
Over One
|
|
|
Over Two
|
|
|
Over Three
|
|
|
Over Four
|
|
|
|
|
|
|
|
|
of Total Time
|
|
|
|
One Year
|
|
|
Year to
|
|
|
Years to
|
|
|
Years to
|
|
|
Years to
|
|
|
|
|
|
|
|
|
Deposit
|
|
|
|
and Under
|
|
|
Two Years
|
|
|
Three Years
|
|
|
Four Years
|
|
|
Five Years
|
|
|
Thereafter
|
|
|
Total
|
|
|
Accounts
|
|
|
|
(Dollars in thousands)
|
|
|
Interest Rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.00% 1.00%
|
|
$
|
128,770
|
|
|
$
|
635
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
129,405
|
|
|
|
23.80
|
%
|
1.01% 2.00%
|
|
|
176,915
|
|
|
|
76,900
|
|
|
|
1,984
|
|
|
|
98
|
|
|
|
|
|
|
|
|
|
|
|
255,897
|
|
|
|
47.05
|
|
2.01% 3.00%
|
|
|
47,687
|
|
|
|
5,159
|
|
|
|
9,150
|
|
|
|
7,392
|
|
|
|
18,308
|
|
|
|
10
|
|
|
|
87,706
|
|
|
|
16.13
|
|
3.01% 4.00%
|
|
|
5,036
|
|
|
|
3,680
|
|
|
|
8,557
|
|
|
|
3,031
|
|
|
|
21,019
|
|
|
|
|
|
|
|
41,323
|
|
|
|
7.60
|
|
4.01% 5.00%
|
|
|
9,417
|
|
|
|
10,457
|
|
|
|
4,593
|
|
|
|
480
|
|
|
|
90
|
|
|
|
1,305
|
|
|
|
26,342
|
|
|
|
4.84
|
|
5.01% 6.00%
|
|
|
1,606
|
|
|
|
1,264
|
|
|
|
262
|
|
|
|
|
|
|
|
|
|
|
|
25
|
|
|
|
3,157
|
|
|
|
0.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
369,431
|
|
|
$
|
98,095
|
|
|
$
|
24,546
|
|
|
$
|
11,001
|
|
|
$
|
39,417
|
|
|
$
|
1,340
|
|
|
$
|
543,830
|
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the interest-bearing deposit
activities for the years indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Beginning balance
|
|
$
|
978,624
|
|
|
$
|
926,395
|
|
|
$
|
851,660
|
|
Net increase in deposits before interest credited
|
|
|
60,489
|
|
|
|
32,858
|
|
|
|
49,666
|
|
Interest credited
|
|
|
11,411
|
|
|
|
19,371
|
|
|
|
25,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in deposits
|
|
|
71,900
|
|
|
|
52,229
|
|
|
|
74,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
1,050,524
|
|
|
$
|
978,624
|
|
|
$
|
926,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowed
Funds
The Companys borrowings consist solely of advances from
and a line of credit with the FHLBB. At December 31, 2010,
we had an available line of credit with the FHLBB in the amount
of $10.0 million and access to additional Federal Home Loan
Bank advances of up to $134.8 million. Internal policies
limit borrowings to 30% of total assets, or $503.4 million
at December 31, 2010.
Subsidiary
Activities
Rockville Bank is currently the only subsidiary of the Company
and is incorporated in Connecticut. Rockville Bank currently has
the following subsidiaries all of which are incorporated in
Connecticut: SBR Mortgage Company, SBR Investment Corp.,
Rockville Financial Services, Inc., Rockville Commercial
Foreclosed Properties, Inc., Rockville Residential Foreclosed
Properties, Inc. and Rockville Bank Mortgage, Inc.
SBR Mortgage Company: Established in December
1998, SBR Mortgage Company operates as Rockville Banks
passive investment company (PIC) which
exempts it from Connecticut income tax under current law.
SBR Investment Corp.: Established in January
1995, SBR Investment Corp. was established to maintain an
ownership interest in Infinex Investments, Inc.
(Infinex) a third-party, non-affiliated registered
broker-dealer. Infinex provides broker-dealer services for a
number of banks, to their customers, including the Banks
customers through Rockville Financial Services, Inc.
Rockville Financial Services,
Inc.: Established in May 2002, Rockville
Financial Services, Inc. currently offers brokerage and
investment advisory services through a contract with Infinex. In
addition, Rockville Financial Services, Inc. offers customers a
range of non-deposit investment products including mutual funds,
debt, equity and government securities, retirement accounts,
insurance products and fixed and variable annuities at all
Rockville Bank locations. Rockville Financial Services, Inc.
receives a portion of the
22
commissions generated by Infinex from sales to customers. For
the year ended December 31, 2010, Rockville Financial
Services, Inc. received fees of $346,000 through its
relationship with Infinex.
Rockville Commercial Foreclosed Properties, Inc., Rockville
Residential Foreclosed Properties, Inc.: Established in May
2009, Rockville Commercial Foreclosed Properties, Inc. and
Rockville Residential Foreclosed Properties, Inc. were
established to hold certain real estate acquired through
foreclosures.
Rockville Bank Mortgage, Inc.: In September
2009, the Company entered into an agreement to purchase the
assets of Family Choice Mortgage Company. The transaction closed
in January 2010 and now operates under the name of Rockville
Bank Mortgage, Inc. The acquisition was made to expand the
Companys mortgage origination business.
Charitable
Foundations
Rockville Bank Foundation, Inc. (the New
Foundation) (formerly known as Rockville Bank Community
Foundation, Inc.): Rockville Bank Foundation,
Inc., a private charitable foundation, was established in May
2005 in connection with the Companys minority stock
issuance. This foundation, which is not a subsidiary of the
Company, provides grants to individuals and
not-for-profit
organizations within the communities that Rockville Bank serves.
In 2005, the Company contributed $3.9 million in stock to
the New Foundation in connection with its minority stock
issuance. Effective October 3, 2007, Rockville Bank
Foundation, Inc., (the Old Foundation), with assets
of approximately $1.2 million merged into the New
Foundation. At December 31, 2010, the New Foundation had
assets of approximately $4.6 million, which included
Rockville Financial, Inc. stock with a value of
$3.8 million at year-end. No contributions were made to the
New Foundation until March 3, 2011 when, in connection with
the Reorganization, the Company contributed $5.0 million in
cash to the Foundation. The New Foundations Board of
Directors consists of two officers of Rockville Bank, the
Chairman of the Board, the Vice Chairman of the Board, and one
corporator of Rockville Financial MHC, Inc.
FEDERAL
AND STATE TAXATION
Federal
Taxation
General: Rockville Financial, Inc. and its
subsidiaries are subject to federal income taxation in the same
general manner as other corporations, with some exceptions
discussed below. Rockville Financial, Inc. and its
subsidiaries tax returns have not been audited during the
past five years. The following discussion of federal taxation is
intended only to summarize certain pertinent federal income tax
matters and is not a comprehensive description of the tax rules
applicable to Rockville Financial, Inc.
Method of Accounting: For Federal income tax
purposes, Rockville Financial, Inc. currently reports its income
and expenses on the accrual method of accounting and uses a tax
year ending December 31 for filing federal income tax returns.
Bad Debt Reserves: Prior to the Small Business
Protection Act of 1996 (the 1996 Act), Rockville
Financial, Inc.s subsidiary, Rockville Bank was permitted
to establish a reserve for bad debts and to make annual
additions to the reserve. These additions could, within
specified formula limits, be deducted in arriving at our taxable
income. As a result of the 1996 Act, Rockville Bank was required
to use the specific charge-off method in computing its bad debt
deduction beginning with its 1996 federal tax return. Savings
institutions were required to recapture any excess reserves over
those established as of December 31, 1987 (base year
reserve). At December 31, 2010, the subsidiary had no
reserves subject to recapture in excess of its base year.
Taxable Distributions and Recapture: Prior to
the 1996 Act, bad debt reserves created before January 1,
1988 were subject to recapture into taxable income if Rockville
Bank failed to meet certain thrift asset and definitional tests.
Federal legislation has eliminated these thrift-related
recapture rules. At December 31, 2010, our total federal
pre-1988 base year reserve was approximately $1.2 million.
However, under current law, pre-1988 base year reserves remain
subject to recapture if Rockville Bank makes certain
non-dividend distributions, repurchases any of its stock, pays
dividends in excess of tax earnings and profits, or ceases to
maintain a bank charter.
23
Alternative Minimum Tax: The Internal Revenue
Code of 1986, as amended (the Code), imposes an
alternative minimum tax (AMT) at a rate of 20% on a
base of regular taxable income plus certain tax preferences
which we refer to as alternative minimum taxable
income. The AMT is payable to the extent such alternative
minimum taxable income is in excess of an exemption amount and
the AMT exceeds the regular income tax. Net operating losses can
offset no more than 90% of alternative minimum taxable income.
Certain AMT payments may be used as credits against regular tax
liabilities in future years. The Company has not been subject to
the AMT and has no such amounts available as credits for
carryover.
Net Operating Loss Carryovers: A corporation
may carry back net operating losses to the preceding two taxable
years and forward to the succeeding 20 taxable years. At
December 31, 2010, Rockville Financial, Inc. had no net
operating loss carryforwards for federal income tax purposes.
Corporate Dividends-Received
Deduction: Rockville Financial, Inc. may exclude
from its income 100% of dividends received from Rockville Bank
as a member of the same affiliated group of corporations. To
date, Rockville Bank has not paid a dividend and currently there
is no plan to pay one in the near future. The corporate
dividends-received deduction is 80% in the case of dividends
received from corporations with which a corporate recipient does
not file a consolidated tax return, and corporations which own
less than 20% of the stock of a corporation distributing a
dividend may deduct only 70% of dividends received or accrued on
their behalf.
State
Taxation
Connecticut State Taxation: The Company and
its subsidiaries are subject to the Connecticut corporation
business tax. The Connecticut corporation business tax is based
on the federal taxable income before net operating loss and
special deductions and makes certain modifications to federal
taxable income to arrive at Connecticut taxable income.
Connecticut taxable income is multiplied by the state tax rate
(7.5% for the fiscal year ending December 31, 2010) to
arrive at Connecticut income tax.
In 1998, the State of Connecticut enacted legislation permitting
the formation of passive investment companies by financial
institutions. This legislation exempts qualifying passive
investment companies from the Connecticut corporation business
tax and excludes dividends paid from a passive investment
company from the taxable income of the parent financial
institution. Rockville Bank established a passive investment
company, SBR Mortgage Company, in December 1998 and eliminated
the state income tax expense of Rockville Bank effective
December 31, 1998 through December 31, 2010.
The Company believes it is in compliance with the state PIC
requirements and that no state taxes are due from
December 31, 1998 through December 31, 2010; however,
the Company has not been audited by the Department of Revenue
Services for such periods. If the state were to determine that
the PIC was not in compliance with statutory requirements, a
material amount of taxes could be due. The State of Connecticut
continues to be under pressure to find new sources of revenue,
and therefore could enact legislation to eliminate the passive
investment company exemption. If such legislation were enacted,
Rockville Financial, Inc. would be subject to state income taxes
in Connecticut.
Massachusetts State Taxation: Due to the
establishment of Rockville Bank Mortgage Company, Inc. and
increased loan activity by Rockville Bank in the State of
Massachusetts, Rockville Financial, Inc. and its subsidiaries
will file Massachusetts Combined Excise Tax Returns beginning in
2010. We report Massachusetts apportioned income on a calendar
year basis. In 2010, Massachusetts excise tax is imposed on net
income at a rate of 10%. Due to legislation, the rate will
decrease by one-half of one percent per year through 2012 when
it will be 9%. Massachusetts net income is based on Federal
taxable income adjusted for certain items.
The Company and Rockville Bank are not currently under audit
with respect to their income tax returns, and their state tax
returns have not been audited for the past five years.
24
SUPERVISION
AND REGULATION
General
Rockville Bank is a Connecticut-chartered stock savings bank and
is a wholly-owned subsidiary of Rockville Financial, Inc., a
stock corporation. Fifty-five percent of the stock of the
Company is owned by Rockville Financial MHC, Inc., a
Connecticut-chartered mutual holding company. Rockville
Banks deposits are insured up to applicable limits by the
FDIC through the Deposit Insurance Fund (DIF).
Rockville Bank is subject to extensive regulation by the
Connecticut Banking Department, as its chartering agency, and by
the Federal Deposit Insurance Corporation, as its deposit
insurer. Rockville Bank is required to file reports with, and is
periodically examined by, the FDIC and the Connecticut Banking
Department concerning its activities and financial condition. It
must obtain regulatory approvals prior to entering into certain
transactions, such as mergers. Rockville Financial, Inc., as a
bank holding company, is subject to regulation by and is
required to file reports with the Federal Reserve Bank of Boston
(FRB). Any change in such regulations, whether by
the Connecticut Banking Department, the FDIC or the FRB, could
have a material adverse impact on Rockville Bank or Rockville
Financial, Inc.
Dodd-Frank
Wall Street Reform and Consumer Protection Act
On July 21, 2010, the President of the United States signed
the Dodd-Frank Wall Street Reform and Consumer Protection Act
(the Dodd-Frank Act). This new law will
significantly change the current bank regulatory structure and
affect the lending, deposit, investment, trading and operating
activities of financial institutions and their holding
companies. The Dodd-Frank Act requires various federal agencies
to adopt a broad range of new rules and regulations, and to
prepare numerous studies and reports for Congress. The federal
agencies are given significant discretion in drafting the rules
and regulations, and consequently, many of the details and much
of the impacts of the Dodd-Frank Act may not be known for many
months or years.
The Dodd-Frank Act creates a new Consumer Financial Protection
Bureau (CFPB) with broad powers to supervise and
enforce consumer protection laws. The CFPB has broad rule-making
authority for a wide range of consumer protection laws that
apply to all banks and savings institutions, including the
authority to prohibit unfair, deceptive or abusive
acts and practices. The CFPB has examination and enforcement
authority over all banks with more than $10 billion in
assets. Rockville Bank, as a bank with $10 billion or less
in assets, will continue to be examined for compliance with the
consumer laws by our primary bank regulators. The Dodd-Frank Act
also weakens the federal preemption rules that have been
applicable for national banks and federal savings associations,
and gives state attorney generals the ability to enforce federal
consumer protection laws.
The Dodd-Frank Act requires minimum leverage
(Tier I) and risk based capital requirements for bank
and savings and loan holding companies that are no less than
those applicable to banks, which will exclude certain
instruments that previously have been eligible for inclusion by
bank holding companies as Tier I capital, such as trust
preferred securities.
A provision of the Dodd-Frank Act, which will become effective
one year after enactment, eliminates the federal prohibitions on
paying interest on demand deposits, thus allowing businesses to
have interest-bearing checking accounts. Depending on
competitive responses, this significant change to existing law
could have an adverse impact on our interest expense. The
Dodd-Frank Act also broadens the base for FDIC deposit insurance
assessments. Assessments will now be based on the average
consolidated total assets less tangible equity capital of a
financial institution, rather than deposits. The Dodd-Frank Act
also permanently increases the maximum amount of deposit
insurance for banks, savings institutions and credit unions to
$250,000 per depositor, retroactive to January 1, 2009, and
non-interest-bearing transaction accounts have unlimited deposit
insurance through December 31, 2012. The legislation also
increases the required minimum reserve ratio for the Deposit
Insurance Fund, from 1.15% to 1.35% of insured deposits, and
directs the FDIC to offset the effects of increased assessments
on depository institutions with less than $10 billion in
assets.
Under the Dodd-Frank Act we will be required to give
stockholders a non-binding vote on executive compensation and
so-called golden parachute payments. The Dodd-Frank
Act also authorizes the Securities
25
and Exchange Commission to promulgate rules that would allow
stockholders to nominate their own candidates using our proxy
materials. The legislation also directs the Federal Reserve
Board to promulgate rules prohibiting excessive compensation
paid to bank holding company executives, regardless of whether
the company is publicly traded or not.
It is difficult to predict at this time what specific impact the
Dodd-Frank Act and the yet to be written implementing rules and
regulations will have on community banks. However, it is
expected that at a minimum they will increase our operating and
compliance costs and could increase our interest expense.
Connecticut
Banking Laws And Supervision
Connecticut Banking Commissioner: The
Commissioner regulates internal organization as well as the
deposit, lending and investment activities of state chartered
banks, including Rockville Bank. The approval of the
Commissioner is required for, among other things, the
establishment of branch offices and business combination
transactions. The Commissioner conducts periodic examinations of
Connecticut-chartered banks. The FDIC also regulates many of the
areas regulated by the Commissioner, and federal law may limit
some of the authority provided to Connecticut-chartered banks by
Connecticut law.
Lending Activities: Connecticut banking laws
grant banks broad lending authority. With certain limited
exceptions, any one obligor under this statutory authority may
not exceed 10% and 15%, respectively, of a banks capital
and allowance for loan losses.
Dividends: The Bank may pay cash dividends out
of its net profits. For purposes of this restriction, net
profits represents the remainder of all earnings from
current operations. Further, the total amount of all dividends
declared by a savings bank in any year may not exceed the sum of
a banks net profits for the year in question combined with
its retained net profits from the preceding two years. Federal
law also prevents an institution from paying dividends or making
other capital distributions that, if by doing so, would cause it
to become undercapitalized. The FDIC may limit a
savings banks ability to pay dividends. No dividends may
be paid to the Banks shareholder if such dividends would
reduce stockholders equity below the amount of the
liquidation account required by the Connecticut conversion
regulations.
Powers: Connecticut law permits Connecticut
banks to sell insurance and fixed and variable rate annuities if
licensed to do so by the Connecticut Insurance Commissioner.
With the prior approval of the Commissioner, Connecticut banks
are also authorized to engage in a broad range of activities
related to the business of banking, or that are financial in
nature or that are permitted under the Bank Holding Company Act
(BHCA) or the Home Owners Loan Act
(HOLA), both federal statutes, or the regulations
promulgated as a result of these statutes. Connecticut banks are
also authorized to engage in any activity permitted for a
national bank or a federal savings association upon filing
notice with the Commissioner unless the Commissioner disapproves
the activity.
Assessments: Connecticut banks are required to
pay annual assessments to the Connecticut Banking Department to
fund the Departments operations. The general assessments
are paid pro-rata based upon a banks asset size.
Enforcement: Under Connecticut law, the
Commissioner has extensive enforcement authority over
Connecticut banks and, under certain circumstances, affiliated
parties, insiders, and agents. The Commissioners
enforcement authority includes cease and desist orders, fines,
receivership, conservatorship, removal of officers and
directors, emergency closures, dissolution and liquidation.
Federal
Regulations
Capital Requirements: Under FDIC regulations,
federally insured state-chartered banks that are not members of
the Federal Reserve System (state non-member banks),
such as Rockville Bank, are required to comply with minimum
leverage capital requirements. For an institution determined by
the FDIC to not be anticipating or experiencing significant
growth and to be, in general, a strong banking organization,
rated composite 1 under the Uniform Financial Institutions
Ranking System established by the Federal Financial Institutions
Examination Council, the minimum capital leverage requirement is
a ratio of Tier I capital to total
26
assets of 3%. For all other institutions, the minimum leverage
capital ratio is 4%. Tier I capital is the sum of common
stockholders equity, non-cumulative perpetual preferred
stock (including any related surplus) and minority investments
in certain subsidiaries, less intangible assets (except for
certain servicing rights and credit card relationships) and
certain other specified items.
The FDIC regulations require state non-member banks to maintain
certain levels of regulatory capital in relation to regulatory
risk-weighted assets. The ratio of regulatory capital to
regulatory risk-weighted assets is referred to as a banks
risk-based capital ratio. Risk-based capital ratios
are determined by allocating assets and specified off-balance
sheet items (including recourse obligations, direct credit
substitutes and residual interests) to four risk-weighted
categories ranging from 0% to 100%, with higher levels of
capital being required for the categories perceived as
representing greater risk. For example, under the FDICs
risk-weighting system, cash and securities backed by the full
faith and credit of the U.S. government are given a 0% risk
weight, loans secured by
one-to-four
family residential properties generally have a 50% risk weight,
and commercial loans have a risk weighting of 100%.
State non-member banks such as Rockville Bank, must maintain a
minimum ratio of total capital to risk-weighted assets of 8%, of
which at least one-half must be Tier I capital. Total
capital consists of Tier I capital plus Tier 2 or
supplementary capital items, which include allowances for loan
losses in an amount of up to 1.25% of risk-weighted assets,
cumulative preferred stock and certain other capital
instruments, and a portion of the net unrealized gain on equity
securities. The includable amount of Tier 2 capital cannot
exceed the amount of the institutions Tier I capital.
Banks that engage in specified levels of trading activities are
subject to adjustments in their risk based capital calculation
to ensure the maintenance of sufficient capital to support
market risk.
The Federal Deposit Insurance Corporation Improvement Act (the
FDICIA) required each federal banking agency to
revise its risk-based capital standards for insured institutions
to ensure that those standards take adequate account of
interest-rate risk, concentration of credit risk, and the risk
of nontraditional activities, as well as to reflect the actual
performance and expected risk of loss on multi-family
residential loans. The FDIC, along with the other federal
banking agencies, has adopted a regulation providing that the
agencies will take into account the exposure of a banks
capital and economic value to changes in interest rate risk in
assessing a banks capital adequacy. The FDIC also has
authority to establish individual minimum capital requirements
in appropriate cases upon determination that an
institutions capital level is, or is likely to become,
inadequate in light of the particular circumstances.
As a bank holding company, Rockville Financial, Inc. is subject
to capital adequacy guidelines for bank holding companies
similar to those of the FDIC for state-chartered banks.
Rockville Financial, Inc.s stockholders equity
exceeds these requirements.
Prompt Corrective Regulatory Action: Federal
law requires, among other things, that federal bank regulatory
authorities take prompt corrective action with
respect to banks that do not meet minimum capital requirements.
For these purposes, the law establishes five capital categories:
well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized.
The FDIC has adopted regulations to implement the prompt
corrective action legislation. An institution is deemed to be
well capitalized if it has a total risk-based
capital ratio of 10% or greater, a Tier I risk-based
capital ratio of 6% or greater and a leverage ratio of 5% or
greater. An institution is adequately capitalized if
it has a total risk-based capital ratio of 8% or greater, a
Tier I risk-based capital ratio of 4% or greater, and
generally a leverage ratio of 4% or greater. An institution is
undercapitalized if it has a total risk-based
capital ratio of less than 8%, a Tier I risk-based capital
ratio of less than 4%, or generally a leverage ratio of less
than 4%. An institution is deemed to be significantly
undercapitalized if it has a total risk-based capital
ratio of less than 6%, a Tier I risk-based capital ratio of
less than 3%, or a leverage ratio of less than 3%. An
institution is considered to be critically
undercapitalized if it has a ratio of tangible equity (as
defined in the regulations) to total assets that is equal to or
less than 2%. As of December 31, 2010, Rockville Bank was a
well capitalized institution.
27
Undercapitalized banks must adhere to growth,
capital distribution (including dividend) and other limitations
and are required to submit a capital restoration plan. A
banks compliance with such a plan is required to be
guaranteed by any company that controls the undercapitalized
institution in an amount equal to the lesser of 5% of the
institutions total assets when deemed undercapitalized or
the amount necessary to achieve the status of adequately
capitalized. If an undercapitalized bank fails to
submit an acceptable plan, it is treated as if it is
significantly undercapitalized. Significantly
undercapitalized banks must comply with one or more of a
number of additional restrictions, including but not limited to
an order by the FDIC to sell sufficient voting stock to become
adequately capitalized, requirements to reduce total assets,
cease receipt of deposits from correspondent banks or dismiss
directors or officers, and restrictions on interest rates paid
on deposits, compensation of executive officers and capital
distributions by the parent holding company. Critically
undercapitalized institutions are subject to additional
measures including, subject to a narrow exception, the
appointment of a receiver or conservator within 270 days
after it obtains such status.
Transactions with Affiliates: Under current
federal law, transactions between depository institutions and
their affiliates are governed by Sections 23A and 23B of
the Federal Reserve Act (the FRA). In a holding
company context, at a minimum, the parent holding company of a
savings bank and any companies which are controlled by such
parent holding company are affiliates of the savings bank.
Generally, Section 23A limits the extent to which the
savings bank or its subsidiaries may engage in covered
transactions with any one affiliate to 10% of such savings
banks capital stock and surplus, and contains an aggregate
limit on all such transactions with all affiliates to 20% of
capital stock and surplus. The term covered
transaction includes, among other things, the making of
loans or other extensions of credit to an affiliate and the
purchase of assets from an affiliate. Section 23A also
establishes specific collateral requirements for loans or
extensions of credit to, or guarantees, acceptances on letters
of credit issued on behalf of an affiliate. Section 23B
requires that covered transactions and a broad list of other
specified transactions be on terms substantially the same, or no
less favorable, to the savings bank or its subsidiary as similar
transactions with non-affiliates.
Loans to Insiders: Further, Section 22(h)
of the FRA restricts an institution with respect to loans to
directors, executive officers, and principal stockholders
(insiders). Under Section 22(h), loans to
insiders and their related interests may not exceed, together
with all other outstanding loans to such persons and affiliated
entities, the institutions total capital and surplus.
Loans to insiders above specified amounts must receive the prior
approval of the Board of Directors. Further, under Section
22(h), loans to Directors, executive officers and principal
stockholders must be made on terms substantially the same as
offered in comparable transactions to other persons, except that
such insiders may receive preferential loans made under a
benefit or compensation program that is widely available to the
banks employees and does not give preference to the
insider over the employees. Section 22(g) of the FRA places
additional limitations on loans to executive officers.
Enforcement: The FDIC has extensive
enforcement authority over insured savings banks, including
Rockville Bank. This enforcement authority includes, among other
things, the ability to assess civil money penalties, issue cease
and desist orders and remove directors and officers. In general,
these enforcement actions may be initiated in response to
violations of laws and regulations and unsafe or unsound
practices.
The FDIC has authority under Federal law to appoint a
conservator or receiver for an insured bank under limited
circumstances. The FDIC is required, with certain exceptions, to
appoint a receiver or conservator for an insured state
non-member bank if that bank was critically
undercapitalized on average during the calendar quarter
beginning 270 days after the date on which the institution
became critically undercapitalized. The FDIC may
also appoint itself as conservator or receiver for an insured
state non-member institution under specific circumstances on the
basis of the institutions financial condition or upon the
occurrence of other events, including: (1) insolvency;
(2) substantial dissipation of assets or earnings through
violations of law or unsafe or unsound practices;
(3) existence of an unsafe or unsound condition to transact
business; and (4) insufficient capital, or the incurring of
losses that will deplete substantially all of the
institutions capital with no reasonable prospect of
replenishment without federal assistance.
28
Insurance
of Deposit Accounts
The FDIC has adopted a risk-based insurance assessment system.
The FDIC assigns an institution to one of three capital
categories based on the institutions financial condition
consisting of (1) well capitalized, (2) adequately
capitalized or (3) undercapitalized, and one of three
supervisory subcategories within each capital group. The
supervisory subgroup to which an institution is assigned is
based on a supervisory evaluation provided to the FDIC by the
institutions primary federal regulator and information
which the FDIC determines to be relevant to the
institutions financial condition and the risk posed to the
deposit insurance funds. An institutions assessment rate
depends on the capital category and supervisory category to
which it is assigned. Assessment rates for insurance fund
deposits range from 12 basis points for the strongest
institution to 50 basis points for the weakest after a
uniform increase of 7 basis points effective
January 1, 2009. DIF members are also required to assist in
the repayment of bonds issued by the Financing Corporation in
the late 1980s to recapitalize the Federal Savings and
Loan Insurance Corporation.
As part of the Dodd-Frank bill, the FDIC insurance limit was
permanently increased to $250,000 per regular account. Unlimited
deposit insurance coverage was available through June 30,
2010, for non-interest-bearing transaction accounts at Rockville
Bank as the Bank was participating in FDICs Temporary
Liquidity Guarantee Program. Additionally, the FDIC approved a
plan for rebuilding the DIF after several bank failures in 2008.
The FDIC plan aims to rebuild the DIF within five years; the
first assessment increase was a uniform seven basis points
effective January 2009. For the years ended December 31,
2010, 2009 and 2008, the total FDIC assessments were
$1.6 million, $2.2 million and $654,000, respectively.
In November 2009, the FDIC issued new regulations requiring
insured institutions to prepay their estimated quarterly
risk-based assessments for the fourth quarter of 2009, and for
all of 2010, 2011 and 2012. The prepaid assessments for these
periods were collected on December 30, 2009 and totaled
$5.9 million for the Company. The FDIC has exercised its
authority to raise assessment rates for 2009, and may raise
insurance premiums in the future. If such action is taken by the
FDIC it could have an adverse effect on the earnings of the
Company.
The FDIC may terminate insurance of deposits if it finds that
the institution is in an unsafe or unsound condition to continue
operations, has engaged in unsafe or unsound practices, or has
violated any applicable law, regulation, rule, order or
condition imposed by the FDIC. The management of the Company
does not know of any practice, condition or violations that
might lead to termination of deposit insurance.
Federal
Reserve System
The FRB regulations require depository institutions to maintain
non-interest-earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The FRB
regulations generally require that reserves be maintained
against aggregate transaction accounts. The Company is in
compliance with these requirements.
Federal
Home Loan Bank System
The Company is a member of the Federal Home Loan Bank of Boston
(FHLBB), which is one of the regional Federal Home
Loan Banks composing the Federal Home Loan Bank System. Each
Federal Home Loan Bank serves as a central credit facility
primarily for its member institutions. The Company, as a member
of the FHLBB, is required to acquire and hold shares of capital
stock in the FHLBB. While the required percentages of stock
ownership are subject to change by the FHLBB, the Company was in
compliance with this requirement with an investment in FHLBB
stock at December 31, 2010 and December 31, 2009. In
the past, the Company had received dividends on its Federal Home
Loan Bank stock. For the years ended December 31, 2008 and
2007, cash dividends from the Federal Home Loan Bank to the
Company amounted to approximately $473,000 and $658,000,
respectively. On January 28, 2009, the FHLBB notified its
members of its focus on preserving capital in response to the
ongoing market volatility. The letter outlined that actions
taken by the FHLBB included an excess stock repurchase
moratorium, an increased retained earnings target, and
suspension of its quarterly dividend payment. As such, there
were no dividends received during the years ended
December 31, 2010 and 2009. In February, the FHLBB declared
a dividend for the first time in over two years with an annual
yield of 30 basis points with the first payment payable on
March 2, 2011. There can
29
be no assurance that the impact of recent or future legislation
on the Federal Home Loan Banks also will not cause a decrease in
the value of the Federal Home Loan Bank of Boston stock held by
the Company.
Holding
Company Regulation
General: As a bank holding company, Rockville
Financial, Inc. is subject to comprehensive regulation and
regular examinations by the Federal Reserve Board. The Federal
Reserve Board also has extensive enforcement authority over bank
holding companies, including, among other things, the ability to
assess civil money penalties, to issue cease and desist or
removal orders and to require that a holding company divest
subsidiaries (including its bank subsidiaries). In general,
enforcement actions may be initiated for violations of law and
regulations and unsafe or unsound practices. Under Connecticut
banking law, no person may acquire beneficial ownership of more
than 10% of any class of voting securities of a
Connecticut-chartered bank, or any bank holding company of such
a bank, without prior notification of, and lack of disapproval
by, the Connecticut Banking Commissioner.
Under Federal Reserve Board policy, a bank holding company must
serve as a source of strength for its subsidiary bank. Under
this policy, the Federal Reserve Board may require, and has
required in the past, a holding company to contribute additional
capital to an undercapitalized subsidiary bank. As a bank
holding company, Rockville Financial, Inc. must obtain Federal
Reserve Board approval before: (i) acquiring, directly or
indirectly, ownership or control of any voting shares of another
bank or bank holding company if, after such acquisition, it
would own or control more than 5% of such shares (unless it
already owns or controls the majority of such shares);
(ii) acquiring all or substantially all of the assets of
another bank or bank holding company; or (iii) merging or
consolidating with another bank holding company.
The Banking Holding Company Act also prohibits a bank holding
company, with certain exceptions, from acquiring direct or
indirect ownership or control of more than 5% of the voting
shares of any company which is not a bank or bank holding
company, or from engaging directly or indirectly in activities
other than those of banking, managing or controlling banks, or
providing services for its subsidiaries. The principal
exceptions to these prohibitions involve certain non-bank
activities which, by statute or by FRB regulation or order, have
been identified as activities closely related to the business of
banking or managing or controlling banks. The list of activities
permitted by the FRB includes, among other things:
(i) operating a savings institution, mortgage company,
finance company, credit card company or factoring company;
(ii) performing certain data processing operations;
(iii) providing certain investment and financial advice;
(iv) underwriting and acting as an insurance agent for
certain types of credit-related insurance; (v) leasing
property on a full-payout, non-operating basis;
(vi) selling money orders, travelers checks and
United States savings bonds; (vii) real estate and personal
property appraising; (viii) providing tax planning and
preparation services; (ix) financing and investing in
certain community development activities; and (x) subject
to certain limitations, providing securities brokerage services
for customers.
Dividends: The Federal Reserve Board has
issued a policy statement on the payment of cash dividends by
bank holding companies, which expresses the Federal Reserve
Boards view that a bank holding company should pay cash
dividends only to the extent that the holding companys net
income for the past year is sufficient to cover both the cash
dividends and a rate of earnings retention that is consistent
with the holding companys capital needs, asset quality and
overall financial condition. The FRB also indicated that it
would be inappropriate for a company experiencing serious
financial problems to borrow funds to pay dividends.
Furthermore, under the prompt corrective action regulations
adopted by the Federal Reserve Board, the Federal Reserve Board
may prohibit a bank holding company from paying any dividends if
the holding companys bank subsidiary is classified as
undercapitalized.
Bank holding companies are required to give the Federal Reserve
Board prior written notice of any purchase or redemption of its
outstanding equity securities if the gross consideration for the
purchase or redemption, when combined with the net consideration
paid for all such purchases or redemptions during the preceding
12 months, is equal to 10% or more of the consolidated net
worth of the bank holding company. The Federal Reserve Board may
disapprove such a purchase or redemption if it determines that
the proposal would constitute an unsafe or unsound practice or
would violate any law, regulation, Federal Reserve Board
30
order or any condition imposed by, or written agreement with,
the Federal Reserve Board. This notification requirement does
not apply to any company that meets the well-capitalized
standard for commercial banks, is well managed
within the meaning of the Federal Reserve Board regulations and
is not subject to any unresolved supervisory issues.
Financial Modernization: The
Gramm-Leach-Bliley Act permits greater affiliation among banks,
securities firms, insurance companies, and other companies under
a new type of financial services company known as a
financial holding company. A financial holding
company essentially is a bank holding company with significantly
expanded powers. Financial holding companies are authorized by
statute to engage in a number of financial activities previously
impermissible for bank holding companies, including securities
underwriting, dealing and market making; sponsoring mutual funds
and investment companies; insurance underwriting and agency; and
merchant banking activities. The act also permits the Federal
Reserve Board and the Treasury Department to authorize
additional activities for financial holding companies if they
are financial in nature or incidental to
financial activities. A bank holding company may become a
financial holding company if each of its subsidiary banks is
well capitalized, well managed, and has at least a
satisfactory Community Reinvestment Act rating. A
financial holding company must provide notice to the Federal
Reserve Board within 30 days after commencing activities
previously determined by statute or by the Federal Reserve Board
and Department of the Treasury to be permissible. Rockville
Financial, Inc. has not submitted notice to the Federal Reserve
Board of its intent to be deemed a financial holding company.
However, it is not precluded from submitting a notice in the
future should it wish to engage in activities only permitted to
financial holding companies.
Miscellaneous
Regulation
Sarbanes-Oxley Act of 2002: The Company is
subject to the Sarbanes-Oxley Act of 2002 (the Act),
which implements a broad range of corporate governance and
accounting measures for public companies designed to promote
honesty and transparency in corporate America and better protect
investors from corporate wrongdoing. In general, the
Sarbanes-Oxley Act mandated important new corporate governance
and financial reporting requirements intended to enhance the
accuracy and transparency of public companies reported
financial results. It established new responsibilities for
corporate chief executive officers, chief financial officers and
audit committees in the financial reporting process, and it
created a new regulatory body to oversee auditors of public
companies. It backed these requirements with new SEC enforcement
tools, increased criminal penalties for federal mail, wire and
securities fraud, and created new criminal penalties for
document and record destruction in connection with federal
investigations. It also increased the opportunity for more
private litigation by lengthening the statute of limitations for
securities fraud claims and providing new federal corporate
whistleblower protection.
Section 402 of the Act prohibits the extension of personal
loans to directors and executive officers of issuers (as defined
in the Sarbanes-Oxley Act). The prohibition, however, does not
apply to mortgages advanced by an insured depository
institution, such as the Company, that are subject to the
insider lending restrictions of Section 22(h) of the
Federal Reserve Act.
The Act also required that the various securities exchanges,
including The NASDAQ Global Select Stock Market, prohibit the
listing of the stock of an issuer unless that issuer complies
with various requirements relating to their committees and the
independence of their directors that serve on those committees.
Community Reinvestment Act: Under the
Community Reinvestment Act (CRA), as amended as
implemented by FDIC regulations, a bank has a continuing and
affirmative obligation, consistent with its safe and sound
operation, to help meet the credit needs of its entire
community, including low and moderate income neighborhoods. The
CRA does not establish specific lending requirements or programs
for financial institutions nor does it limit an
institutions discretion to develop the types of products
and services that it believes are best suited to its particular
community. The CRA does require the FDIC, in connection with its
examination of a bank, to assess the institutions record
of meeting the credit needs of its community and to take such
record into account in its evaluation of certain applications by
such institution, including applications to acquire branches and
other financial institutions. The CRA requires the FDIC to
provide a written
31
evaluation of an institutions CRA performance utilizing a
four-tiered descriptive rating system. Rockville Banks
latest FDIC CRA rating was outstanding.
Connecticut has its own statutory counterpart to the CRA which
is also applicable to Rockville Bank. The Connecticut version is
generally similar to the CRA but utilizes a five-tiered
descriptive rating system. Connecticut law requires the
Commissioner to consider, but not be limited to, a banks
record of performance under Connecticut law in considering any
application by the bank to establish a branch or other
deposit-taking facility, to relocate an office or to merge or
consolidate with or acquire the assets and assume the
liabilities of any other banking institution. Rockville
Banks most recent rating under Connecticut law was
outstanding.
Consumer Protection And Fair Lending
Regulations: The Company is subject to a variety
of federal and Connecticut statutes and regulations that are
intended to protect consumers and prohibit discrimination in the
granting of credit. These statutes and regulations provide for a
range of sanctions for non-compliance with their terms,
including imposition of administrative fines and remedial
orders, and referral to the Attorney General for prosecution of
a civil action for actual and punitive damages and injunctive
relief. Certain of these statutes authorize private individual
and class action lawsuits and the award of actual, statutory and
punitive damages and attorneys fees for certain types of
violations.
The USA Patriot Act: On October 26, 2001,
the USA PATRIOT Act was enacted. The Act gives the federal
government new powers to address terrorist threats through
enhanced domestic security measures, expanded surveillance
powers, increased information sharing and broadened anti-money
laundering requirements. The Act also requires the federal
banking regulators to take into consideration the effectiveness
of controls designed to combat money-laundering activities in
determining whether to approve a merger or other acquisition
application of an FDIC-insured institution. As such, if the
Company or the Bank were to engage in a merger or other
acquisition, the effectiveness of its anti-money-laundering
controls would be considered as part of the application process.
The Company has established policies, procedures and systems to
comply with the applicable requirements of the law. The Patriot
Act was reauthorized and modified with the enactment of the USA
Patriot Improvement and Reauthorization Act of 2005.
Dividend
Waivers By Rockville Financial MHC, Inc.
The following disclosure refers to the period prior to
March 3, 2011. It has been the policy of a number of mutual
holding companies to waive the receipt of dividends declared by
their savings institution subsidiary. In connection with its
approval of the reorganization however, the Federal Reserve
Board imposed certain conditions on the waiver by Rockville
Financial MHC, Inc. of dividends paid on the common stock by
Rockville Financial, Inc. In particular, the Federal Reserve
Board required that Rockville Financial MHC, Inc. obtain the
prior approval of the Federal Reserve Board before Rockville
Financial MHC, Inc. may waive any dividends from Rockville
Financial, Inc. As of the date hereof, we are not aware that the
Federal Reserve Board has given its approval to any waiver of
dividends of any mutual holding company that has requested such
approval.
The Federal Reserve Board approval of the 2005 reorganization
also required that the amount of any dividends waived by
Rockville Financial MHC, Inc. will not be available for payment
to the public stockholders of Rockville Financial, Inc.
(i.e., stockholders other than Rockville Financial MHC,
Inc.) and that such amounts would be excluded from Rockville
Financial, Inc.s capital for purposes of calculating
dividends payable to the public stockholders. Moreover,
Rockville Bank was required to maintain the cumulative amount of
dividends waived by Rockville Financial MHC, Inc. in a
restricted capital account that would be added to the
liquidation account established in the reorganization. This
amount would not be available for distribution to public
stockholders. The restricted capital account and liquidation
account amounts would not be reflected in Rockville Banks
financial statements, but would be considered as a notational or
memorandum account of Rockville Bank. These accounts would be
maintained in accordance with the laws, rules, regulations and
policies of the Connecticut Banking Department and the Plan of
Reorganization and Minority Stock Issuance.
Rockville Financial MHC, Inc. did not waive any dividends paid
or declared by Rockville Financial, Inc. In connection with its
Reorganization, in accordance with conversion rules, the
dividends paid to Rockville Financial MHC, Inc. caused an
adjustment in the share exchange ratio of the former
shareholders of Old RFI.
32
Federal
Securities Laws
Rockville Financial, Inc.s common stock is registered with
the Securities and Exchange Commission under the Securities
Exchange Act of 1934 and is subject to the information, proxy
solicitation, insider trading restrictions and other
requirements under the Securities Exchange Act of 1934.
You should consider carefully the following risk factors in
evaluating an investment in shares of our common stock. An
investment in our common stock is subject to risks inherent in
our business. Before making an investment decision, you should
carefully consider the risks and uncertainties described
below.
Risks
Related to Our Business
Our
success depends on our key personnel, including our executive
officers, and the loss of key personnel could disrupt our
business.
Our success greatly depends on the contributions of our senior
management and other key personnel. In June 2009, we announced
that William J. McGurk, our longstanding President and Chief
Executive Officer, will retire at the annual meeting of
shareholders to be held in April, 2011. Mr. McGurk will
remain on our Board of Directors until his term expires in 2013.
Mr. McGurk has agreed to a continuing consulting role after
his retirement. In addition, our Executive Vice President and
Chief Operating Officer, Joseph F. Jeamel, Jr. retired on
June 30, 2010. Mr. Jeamel remains on the Board until
2011 when his current term expires. The Board nominated him for
an additional two-year term until 2013 to facilitate transition
issues. The Company Bylaws provide that no person age 70 or
older is eligible for election and/or
re-election
as a Director; however, the Company is making an exception to
the retirement age policy at this time and allowing for the
re-nomination
of Mr. Joseph F. Jeamel, Jr. for a two-year term in
order to assist with the Companys transition to a new
fully public company through the second step conversion
completed in March 2011. Mr. Jeamel currently consults for
Rockville Bank as well. His former Chief Operating Officer
responsibilities were assumed by Executive Vice Presidents,
Christopher E. Buchholz and Richard J. Trachimowicz.
Mr. McGurk and Mr. Jeamel have been key contributors
in our successful growth and operation, and Mr. McGurk is
frequently referred to as the face of Rockville
Bank. In January 2011, the Company announced Mr. William
H.W. Crawford, IV as Mr. McGurks replacement
effective in April of this year. While we will strive to make
this transition as smooth as possible, this leadership change
may result in disruptions to our business or operations. In
addition, our success will depend on our ability to recruit and
retain additional highly-skilled personnel.
We are
subject to lending risk and could incur losses in our loan
portfolio despite our underwriting practices.
Rockville Bank originates commercial and industrial loans,
commercial real estate loans, consumer loans, and residential
mortgage loans primarily within its market area. Commercial and
industrial loans, commercial real estate loans, and consumer
loans may expose a lender to greater credit risk than loans
secured by residential real estate because the collateral
securing these loans may not be sold as easily as residential
real estate. In addition, commercial real estate and commercial
and industrial loans may also involve relatively large loan
balances to individual borrowers or groups of borrowers. These
loans also have a greater credit risk than residential real
estate for the following reasons:
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Commercial and Industrial Loans. Repayment is
generally dependent upon the successful operation of the
borrowers business.
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Commercial Real Estate Loans. Repayment is
dependent on income being generated in amounts sufficient to
cover operating expenses and debt service.
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Consumer Loans. Consumer loans are
collateralized, if at all, with assets that may
not
provide an adequate source of payment of the loan due to
depreciation, damage or loss.
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Due to the economic recession and slow economic recovery, the
real estate market and local economy are continuing to
deteriorate, which has adversely affected the value of the
properties securing the loans or revenues from borrowers
businesses, thereby increasing the risk of non-performing loans.
The decreases in real estate values have adversely affected the
value of property used as collateral for our commercial real
estate loans. The continued deterioration in the economy and
slow economic recovery may also have a negative effect on the
ability of our commercial borrowers to make timely repayments of
their loans, which could have an adverse impact on our earnings.
In addition, if poor economic conditions continue to result in
decreased demand for loans, our profits may decrease because our
alternative investments may earn less income than loans.
All of these factors could have a material adverse effect on our
financial condition and results of operations. See further
discussion on the commercial loan portfolio in Loans
within Item 7 -Managements Discussion and
Analysis of Financial Condition and Results of Operations,
of this Annual Report on
Form 10-K.
Because
we intend to continue to increase our commercial real estate and
commercial business loan originations, our lending risk will
increase, and downturns in the real estate market or local
economy could adversely affect our earnings.
Commercial real estate and commercial business loans generally
have more risk than residential mortgage loans. Because the
repayment of commercial real estate and commercial business
loans depends on the successful management and operation of the
borrowers properties or related businesses, repayment of
such loans can be affected by adverse conditions in the real
estate market or the local economy. Commercial real estate and
commercial business loans may also involve relatively large loan
balances to individual borrowers or groups of related borrowers.
A downturn in the real estate market or the local economy could
adversely affect the value of properties securing the loan or
the revenues from the borrowers business, thereby
increasing the risk of non-performing loans. As our commercial
real estate and commercial business loan portfolios increase,
the corresponding risks and potential for losses from these
loans may also increase.
If
Rockville Banks allowance for loan losses is not
sufficient to cover actual loan losses, our earnings could
decrease.
We make various assumptions and judgments about the
collectability of our loan portfolio, including the
creditworthiness of our borrowers and the value of the real
estate and other assets serving as collateral for the repayment
of many of our loans. Recent declines in real estate values have
impacted the collateral values that secure our real estate
loans. The impact of these declines on the original appraised
values of secured collateral is difficult to estimate. In
determining the amount of the allowance for loan losses, we
review our loss and delinquency experience on different loan
categories, and we evaluate existing economic conditions. If our
assumptions are incorrect, our allowance for loan losses may not
be sufficient to cover losses inherent in our loan portfolio,
resulting in additions to our allowance, which would decrease
our net income. Our allowance for loan losses amounted to 1.00%
of total loans outstanding and 115.79% of nonperforming loans at
December 31, 2010. Although we are unaware of any specific
problems with our loan portfolio that would require any increase
in our allowance at the present time, it may need to be
increased further in the future due to our emphasis on loan
growth and on increasing our portfolio of commercial business
and commercial real estate loans.
In addition, banking regulators periodically review our
allowance for loan losses and may require us to increase our
provision for loan losses or recognize further loan charge-offs.
Any increase in the allowance for loan losses or loan
charge-offs as required by these regulatory authorities may have
a material adverse effect on our results of operations and
financial condition.
34
Future
changes in interest rates may reduce our profits which could
have a negative impact on the value of our stock.
Our ability to make a profit largely depends on our net interest
income, which could be negatively affected by changes in
interest rates. Net interest income is the difference between
the interest income Rockville Bank earns on its interest-earning
assets, such as loans and securities, and the interest expense
Rockville Bank pays on its interest bearing liabilities, such as
deposits and borrowings. Increases in interest rates may
decrease loan demand and make it more difficult for borrowers to
repay adjustable rate loans. In addition, as market interest
rates rise, we will have competitive pressures to increase the
rates paid on deposits, which will result in a decrease in our
net interest income.
In addition, changes in interest rates can affect the average
life of loans and mortgage-backed and related securities. A
reduction in interest rates results in increased prepayments of
loans and mortgage-backed and related securities, as borrowers
refinance their debt in order to reduce their borrowing costs.
This creates reinvestment risk, which is the risk that we may
not be able to reinvest prepayments at rates that are comparable
to the rates earned on the prepaid loans or securities.
Continued
or further declines in the value of certain investment
securities could require write-downs, which would reduce our
earnings.
The unrealized losses within our investment securities portfolio
are due to an increase in credit spreads and liquidity issues in
the marketplace. We have concluded these unrealized losses are
temporary in nature since they are not related to the underlying
credit quality of the issuers, and we have the intent and
ability to hold these investments for a time necessary to
recover our cost at stated maturity (at which time, full payment
is expected). However, a continued decline in the value of these
securities or other factors could result in an
other-than-temporary
impairment write-down which would reduce our earnings.
If
dividends paid on our investment in the Federal Home Loan Bank
of Boston continue to be suspended, or if our investment is
classified as
other-than-temporarily
impaired or as permanently impaired, our earnings and/or
stockholders equity could decrease.
We own common stock of the Federal Home Loan Bank of Boston
(FHLBB) to qualify for membership in the Federal
Home Loan Bank System and to be eligible to borrow funds under
the FHLBBs advance program. There is no market for our
FHLBB common stock. In February, the FHLBB declared a dividend
for the first time in over two years with an annual yield of
30 basis points with the first payment payable on
March 2, 2011. The FHLBB anticipates paying modest
dividends through 2011. Further, recent or future legislation
regarding the Federal Home Loan Banks may cause a decrease in
the value of the FHLBB stock we hold.
It is possible that the capitalization of a Federal Home Loan
Bank, including the FHLBB, could be substantially diminished or
reduced to zero. Consequently, we believe that there is a risk
that our investment in FHLBB common stock could be deemed
other-than-temporarily
impaired at some time in the future, and if this occurs, it
would cause our earnings and stockholders equity to
decrease by the after-tax amount of the impairment charge.
Our
stock value may be negatively affected by regulations
restricting takeovers.
The Change in Bank Control Act and the Bank Holding Company Act,
together with Federal Reserve Board regulations promulgated
under those laws, require that a person obtain the consent of
the Federal Reserve Board before attempting to acquire control
of a bank holding company. In addition, the approval of the
Connecticut Banking Commissioner is required prior to an offer
being made to purchase or acquire 10.0% or more of our common
stock for a period of three years from the completion of the
conversion and offering.
35
Rockville
Bank has opened new branches and expects to open additional new
branches which may incur losses during their initial years of
operation as they generate new deposit and loan
portfolios.
Rockville Bank opened new branch offices in Glastonbury in 2005,
in South Glastonbury in 2006, in Enfield and East Windsor in
2007, in Colchester in 2008 and in Manchester and South Windsor
in 2009. Rockville Bank intends to continue to explore
opportunities to expand its branch network. Losses are expected
in connection with these new branches for some time, as the
expenses associated with them are largely fixed and are
typically greater than the income earned at the outset as the
branches build up their customer bases.
Strong
competition within Rockville Banks market area may limit
our growth and profitability.
Competition in the banking and financial services industry is
intense. In our market area, we compete with commercial banks,
savings institutions, mortgage brokerage firms, credit unions,
finance companies, mutual funds, insurance companies, and
brokerage and investment banking firms operating locally and
elsewhere. Many of these competitors have substantially greater
resources and lending limits than we have and offer certain
services that we do not or cannot provide. Our profitability
depends upon our continued ability to compete successfully in
our market area. The greater resources and deposit and loan
products offered by our competitors may limit our ability to
increase our interest-earning assets.
Risks
Related to the Financial Services Industry
The
United States economy remains weak and unemployment levels are
high. A prolonged economic downturn will adversely affect our
business and financial results.
The financial industry experienced unprecedented turmoil in
2008, 2009 and continuing into 2010 as some of the worlds
major financial institutions collapsed, were seized or were
forced into mergers as the credit markets tightened and the
economy headed into a recession, eroding confidence in the
worlds financial system. As we have seen in the past year,
there have been unintended consequences from the measures taken
by the federal government in an effort to stabilize the economy.
The United States economy remains weak and unemployment levels
are high. Worsening of these conditions may adversely affect our
business by materially decreasing our net interest income or
materially increasing our loan losses.
Passage
of the Dodd-Frank Wall Street Reform and Consumer Protection Act
will increase our operational and compliance
costs.
On July 21, 2010, the President of the United States signed
the Dodd-Frank Wall Street Reform and Consumer Protection Act
(the Dodd-Frank Act). This new law will
significantly change the current bank regulatory structure and
affect the lending, deposit, investment, trading and operating
activities of financial institutions and their holding
companies. The Dodd-Frank Act requires various federal agencies
to adopt a broad range of new rules and regulations, and to
prepare numerous studies and reports for Congress. The federal
agencies are given significant discretion in drafting the rules
and regulations, and consequently, many of the details and much
of the impact of the Dodd-Frank Act may not be known for many
months or years.
The Dodd-Frank Act creates a new Consumer Financial Protection
Bureau (CFPB) with broad powers to supervise and
enforce consumer protection laws. The CFPB has broad rule-making
authority for a wide range of consumer protection laws that
apply to all banks and savings institutions, including the
authority to prohibit unfair, deceptive or abusive
acts and practices. The CFPB has examination and enforcement
authority over all banks with more than $10 billion in
assets. Rockville Bank, as a bank with $10 billion or less
in assets, will continue to be examined for compliance with the
consumer laws by our primary bank regulators. The Dodd-Frank Act
also weakens the federal preemption rules that have been
applicable for national banks and federal savings associations,
and gives state attorneys general the ability to enforce federal
consumer protection laws.
The Dodd-Frank Act requires minimum leverage
(Tier I) and risk based capital requirements for bank
and savings and loan holding companies that are no less than
those applicable to banks, which will exclude certain
36
instruments that previously have been eligible for inclusion by
bank holding companies as Tier I capital, such as trust
preferred securities.
A provision of the Dodd-Frank Act, which will become effective
one year after enactment, eliminates the federal prohibitions on
paying interest on demand deposits, thus allowing businesses to
have interest-bearing checking accounts. Depending on
competitive responses, this significant change to existing law
could have an adverse impact on our interest expense.
The Dodd-Frank Act also broadens the base for FDIC deposit
insurance assessments. Assessments will now be based on the
average consolidated total assets less tangible equity capital
of a financial institution, rather than deposits. The Dodd-Frank
Act also permanently increases the maximum amount of deposit
insurance for banks, savings institutions and credit unions to
$250,000 per depositor, retroactive to January 1, 2009, and
non-interest-bearing transaction accounts have unlimited deposit
insurance through December 31, 2012. The legislation also
increases the required minimum reserve ratio for the Deposit
Insurance Fund, from 1.15% to 1.35% of insured deposits, and
directs the FDIC to offset the effects of increased assessments
on depository institutions with less than $10 billion in
assets.
The Dodd-Frank Act will require publicly traded companies to
give stockholders a non-binding vote on executive compensation
and so-called golden parachute payments, and by
authorizing the Securities and Exchange Commission to promulgate
rules that would allow stockholders to nominate their own
candidates using a companys proxy materials. The
legislation also directs the Federal Reserve Board to promulgate
rules prohibiting excessive compensation paid to bank holding
company executives, regardless of whether the company is
publicly traded or not.
It is difficult to predict at this time what specific impact the
Dodd-Frank Act and the yet to be written implementing rules and
regulations will have on community banks. However, it is
expected that at a minimum they will increase our operating and
compliance costs and could increase our interest expense.
Higher
Federal Deposit Insurance Corporation insurance premiums and
special assessments will adversely affect our
earnings.
The FDIC increased deposit insurance premium expense effective
June 30, 2009 in the form of a special assessment. The FDIC
has exercised its authority to raise assessment rates beginning
in 2009, and may impose another special assessment in the
future. If such action is taken by the FDIC it could have an
adverse effect on our earnings. At present, the FDIC has not
required an additional assessment in 2010, but rather required
prepayment in 2009 of deposit insurance premiums for 2010
through 2012.
We
operate in a highly regulated environment and our business may
be adversely affected by changes in laws and
regulations.
We are subject to extensive regulation, supervision and
examination by the Connecticut Banking Commissioner, as
Rockville Banks chartering authority, by the FDIC, as
insurer of deposits, and by the Federal Reserve Board as the
regulator of Rockville Financial, Inc. Such regulation and
supervision govern the activities in which a financial
institution and its holding company may engage and are intended
primarily for the protection of the insurance fund and
depositors. Regulatory authorities have extensive discretion in
connection with their supervisory and enforcement activities,
including the imposition of restrictions on the operation of an
institution, the classification of assets by the institution and
the adequacy of an institutions allowance for loan losses.
Any change in such regulation and oversight, whether in the form
of regulatory policy, regulations, or legislation, may have a
material impact on our operations.
37
Risks
Related to the Offering
Our
failure to deploy the net proceeds of our 2011 Reorganization
Offering effectively may have an adverse impact on our financial
performance and the value of our common stock.
We invested $84.1 million from the Offering in Rockville
Bank. Rockville Bank may use the net proceeds it receives to
repay approximately $40.0 million of maturing FHLBB
advances, to fund new loans, to purchase investment securities,
to pursue strategic growth opportunities or for other general
corporate purposes. We may use the net proceeds retained at New
Rockville Financial to invest in short-term liquid investments,
to repurchase shares of common stock, to pay dividends to our
shareholders, to pursue strategic growth opportunities or for
other general corporate purposes. However, with the exception of
the loan to the employee stock ownership plan to purchase our
common stock and the funding of the charitable foundation, we
have not allocated specific amounts of the net proceeds for any
of these purposes, and we will have significant flexibility in
determining the amount of the net proceeds we apply to different
uses and the timing of such applications. We have not
established a timetable for reinvesting the net proceeds, and we
cannot predict how long reinvesting the net proceeds will
require.
Our
return on equity will be low following the stock offering
compared to our historical performance. This could negatively
affect the trading price of our shares of common
stock.
Net income divided by average equity, known as return on equity,
is a ratio many investors use to compare the performance of a
financial institution to its peers. Our return on average equity
ratio for the year ended December 31, 2010 was 7.48%
compared to a median return on equity of (2.45)% based on
trailing twelve month earnings for all publicly traded fully
converted savings institutions as of December 31, 2009. We
expect our return on equity to remain low until we are able to
leverage the additional capital we receive from the stock
offering. Although we will be able to increase net interest
income using proceeds of the stock offering, our return on
equity will be negatively affected by higher expenses from the
costs of being a fully public company and added expenses
associated with expanding our existing employee stock ownership
plan and adopting one or more new stock benefit plans. Until we
can increase our net interest income and non-interest income and
leverage the capital raised in the stock offering, we expect our
return on equity to remain low, which may reduce the market
price of our shares of common stock.
The
expansion of our existing employee stock ownership plan and
implementation of one or more new stock benefit plans will
increase our compensation and benefit expenses and adversely
affect our profitability.
We intend to adopt one or more new stock benefit plans in 2012
and later, subject to shareholder approval, which will increase
our annual employee compensation and benefit expenses related to
the restricted stock awards and stock options granted to
participants under such plans. The actual amount of the
additional compensation and benefit expenses will depend on the
number of restricted shares and options actually granted under
the plans, the fair market value of our shares of common stock
at specific points in the future, the applicable vesting periods
and other factors which we cannot predict at this time; however,
we expect them to be material. If a stock benefit plan is
implemented within one year of the completion of the conversion
and offering, the number of shares of common stock reserved for
issuance for grants of options and restricted stock awards under
such stock benefit plan may not exceed 9.49% and 3.80% of the
shares sold in the offering, respectively. If we award options
or other stock awards in excess of these amounts under a stock
benefit plan adopted more than one year after the completion of
the offering, our costs would increase further.
In addition, we will recognize expense for our employee stock
ownership plan when shares are committed to be released to
participants accounts (i.e., as the loan used to acquire
these shares is repaid), and we would recognize expense for
stock options and restricted stock over the vesting period of
awards made to recipients. The expense in the first year
following the offering has been estimated to be $199,000
($132,000 after tax). Actual expenses, however, may be higher or
lower, depending on the price of our common stock on the grant
date.
38
Various
factors may make takeover attempts more difficult to
achieve.
Our Board of Directors has no current intention to sell control
of Rockville Financial. Provisions of our certificate of
incorporation and bylaws, federal regulations, Connecticut law
and various other factors may make it more difficult for
companies or persons to acquire control of Rockville Financial
without the consent of our Board of Directors and the
Connecticut Banking Commissioner. You may want a takeover
attempt to succeed because, for example, a potential acquirer
could offer a premium over the then prevailing price of our
common stock. The factors that may discourage takeover attempts
or make them more difficult include:
|
|
|
|
|
Connecticut Banking Regulations. Connecticut
banking regulations prohibit, for a period of three years
following the completion of a conversion, the direct or indirect
acquisition of more than 10.0% of any class of our equity
securities without the prior approval of the Connecticut Banking
Commissioner.
|
|
|
|
Certificate of Incorporation. Provisions of
the certificate of incorporation and bylaws of Rockville
Financial may make it more difficult and expensive to pursue a
takeover attempt that management opposes, even if the takeover
is favored by a majority of our shareholders. These provisions
also would make it more difficult to remove our current Board of
Directors or management, or to elect new directors.
Specifically, our certificate of incorporation prohibits for a
period of five years following the completion of a conversion,
subject to certain limitations, the direct or indirect
acquisition of more than 10.0% of any class of our equity
securities without the prior approval of the Connecticut Banking
Commissioner. Additional provisions include the election of
directors to staggered terms of four years, the prohibition of
cumulative voting in the election of directors and the
requirement that a director may be removed from office only upon
the affirmative vote of at least two-thirds of the directors
then in office or by the affirmative vote of the holders of at
least 80.0% of the voting power of the issued and outstanding
shares entitled to vote for the election of directors. Our
bylaws also contain provisions regarding the timing and content
of shareholder proposals and nominations and qualification for
service on the Board of Directors.
|
|
|
|
Issuance of stock options. We intend to adopt
one or more stock benefit plans no earlier than six months after
the completion of the conversion and offering, pursuant to which
we will grant stock options to key employees and directors that
will require payments to these persons in the event of a change
in control of New Rockville Financial. These payments may have
the effect of increasing the costs of acquiring New Rockville
Financial, thereby discouraging future takeover attempts.
|
|
|
|
Employment and change in control
agreements. Rockville Financial has employment
agreements with certain of its executive and other officers that
will remain in effect following the stock offering. Rockville
Financial intends to enter into an employment agreement and
change in control agreement with its new Chief Executive Officer
and new Chief Operating Officer following the stock offering.
These agreements may have the effect of increasing the costs of
acquiring Rockville Financial, thereby discouraging future
takeover attempts.
|
Our
contribution to the charitable foundation will adversely affect
net income.
We contributed cash equal to 3.0% of the net proceeds from the
offering to Rockville Bank Foundation, Inc., a total of
$5.0 million. The contribution will have an adverse effect
on our net income for the first quarter of 2011 and the full
year 2011.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
At December 31, 2010 the Companys banking subsidiary,
Rockville Bank, operated through its main office at 25 Park
Street, Rockville, Connecticut, 20 banking offices, a
special-need limited services branch and our 41 automated teller
machines (ATM), including nine stand-alone ATM
facilities. The special-need limited services banking office
opened in September 2009. Of the 22 banking offices, 7 are owned
and 15 are
39
leased. Lease expiration dates of our branches range from
8 months to 18 years with renewal options of five to
twenty years. The Company continues to make lease payments for
one stand-alone ATM closed in January 2010, the lease for which
expires in February 2011. The Company
sub-leases
part of two of its locations to third parties.
The locations of the Companys banking offices are as
follows:
|
|
|
|
|
Office Locations:
|
|
Number of Offices:
|
|
|
Hartford County, Connecticut
|
|
|
13
|
|
New London County, Connecticut
|
|
|
1
|
|
Tolland County, Connecticut
|
|
|
8
|
|
|
|
|
|
|
Total
|
|
|
22
|
|
|
|
|
|
|
For additional information regarding the Companys premises
and equipment and lease obligations, see Notes 10 and 16 to
the Consolidated Financial Statements.
|
|
Item 3.
|
Legal
Proceedings
|
We are subject to certain pending and threatened legal actions
which arise out of the normal course of our business, including
typical customer claims and counterclaims arising out of the
retail banking and mortgage banking business. We believe that
the resolution of any pending or threatened litigation will not
have a material adverse effect on our consolidated financial
condition or results of operations.
|
|
Item 4.
|
Removed
and Reserved
|
|
|
Item 5.
|
Market
For The Registrants Common Equity and Related Stockholder
Matters
|
The Companys Common Stock has traded on the NASDAQ Global
Select Stock Market under the symbol RCKB since the
Companys initial public offering closed on May 20,
2005 and the Common Stock began trading on May 23, 2005.
The initial offering price was $10.00 per share. The following
table sets forth the high and low prices (such prices reflect
interdealer prices, without retail markup, markdown or
commissions and may not necessarily represent actual
transactions) of the Common Stock for 2010 and 2009, as reported
by NASDAQ Global Select Stock Market.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock (per Share)
|
|
|
Market Price
|
|
|
|
|
|
|
Dividends
|
|
|
High
|
|
Low
|
|
Declared
|
|
2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
12.42
|
|
|
$
|
8.82
|
|
|
$
|
0.06
|
|
Second Quarter
|
|
|
12.64
|
|
|
|
10.50
|
|
|
|
0.06
|
|
Third Quarter
|
|
|
12.91
|
|
|
|
11.06
|
|
|
|
0.06
|
|
Fourth Quarter
|
|
|
12.47
|
|
|
|
10.50
|
|
|
|
0.065
|
|
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
14.46
|
|
|
$
|
6.17
|
|
|
$
|
0.05
|
|
Second Quarter
|
|
|
12.50
|
|
|
|
8.44
|
|
|
|
0.05
|
|
Third Quarter
|
|
|
14.79
|
|
|
|
9.88
|
|
|
|
0.05
|
|
Fourth Quarter
|
|
|
11.68
|
|
|
|
9.68
|
|
|
|
0.05
|
|
On February 28, 2011, the high and low prices of the
Companys Common Stock were $16.48 and $16.11,
respectively. As of December 31, 2010, there were
19,551,057 shares of the Companys common stock
outstanding. The Company had 3,800 holders of record as of
December 31, 2010, including Rockville
40
Financial MHC, Inc., which held 10,689,250 shares,
Rockville Bank Foundation, Inc. which held 310,700 shares
and the Rockville Bank Employee Stock Ownership Plan, which held
685,250 shares. The above amount does not reflect the
number of persons or entities who hold their stock in nominee or
street name.
Repurchase
of Equity Securities During 2010:
No shares were purchased by us during the year ended
December 31, 2010 of Rockville Financial, Inc. common stock
that are registered by us pursuant to Section 12 of the
Securities Act. Effective January 2008, the Company adopted a
plan to repurchase up to 978,400 of our outstanding shares of
common stock on the open market. At December 31, 2010,
there were 674,718 shares available to be purchased under
this program (based on the Reorganization exchange ratio of
1.5167, this is 1,483,939 shares).
|
|
(1)
|
Securities
Authorized for Issuance Under Equity Compensation
Plans
|
The following table summarizes certain information about the
equity compensation plans of the Company as of December 31,
2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
|
Weighted-
|
|
|
Available for
|
|
|
|
Number of
|
|
|
Average
|
|
|
Future Issuance
|
|
|
|
Securities
|
|
|
Exercise
|
|
|
Under Equity
|
|
|
|
To Be Issued
|
|
|
Price of
|
|
|
Compensaction
|
|
|
|
Upon Exercise
|
|
|
Outstanding
|
|
|
Plans (Excluding
|
|
|
|
of Options,
|
|
|
Options,
|
|
|
Securities
|
|
|
|
Warrants
|
|
|
Warrants
|
|
|
Reflected in
|
|
|
|
and Rights
|
|
|
and Rights
|
|
|
Column (A))
|
|
Plan Category
|
|
(A)
|
|
|
(B)
|
|
|
(C)
|
|
|
Equity compensation plans approved by security holders
|
|
|
557,885
|
|
|
$
|
12.80
|
|
|
|
304,690
|
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
557,885
|
|
|
$
|
12.80
|
|
|
|
304,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends:
The Company started paying dividends in 2006. The Company paid
dividends of $0.245 per share to its stockholders in 2010.
Declarations of dividends by the Board of Directors, if any,
will depend upon a number of factors, including investment
opportunities available to the Company, capital requirements,
regulatory limitations, the Companys financial condition
and results of operations, tax considerations and general
economic conditions. No assurances can be given, however, that
dividends will continue to be paid.
41
Performance
Graph:
The following graph compares the cumulative total return on the
common stock for the period beginning December 31, 2005,
through December 31, 2010, with (i) the cumulative
total return on the S&P 500 Index and (ii) the
cumulative total return on the KBW Regional Banking Index
(Ticker: KRX) for that period. The KBW Regional Banking Index
(KRX) is an index consisting of 50 regional banks across the
United States. This index is considered to be a good
representation due to its equal weighting and diverse
geographical exposure of the banking sector. The index also
tracks three ETFs: SPDR Series Trust: SPDR KBW
Regional Banking EFT (KRE), ProShares Trust: Short
KBW Regional Banking (KRS) and ProShares Trust:
Ultra KBW Regional Banking (KRU) that together have
about $800 million in assets under management.
This graph assumes the investment of $100 on December 31,
2005 in our common stock. The graph assumes all dividends on
RCKB stock, the S&P 500 Index and the KRX are reinvested.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S&P 500
|
|
12/31/2005
|
|
|
12/31/2006
|
|
|
12/31/2007
|
|
|
12/31/2008
|
|
|
12/31/2009
|
|
|
12/31/2010
|
|
|
Price Index
|
|
|
1248.29
|
|
|
|
1418.30
|
|
|
|
1468.36
|
|
|
|
903.25
|
|
|
|
1115.1
|
|
|
|
1257.64
|
|
Capital Appreciation
|
|
|
2
|
%
|
|
|
6
|
%
|
|
|
(4
|
)%
|
|
|
(23
|
)%
|
|
|
5
|
%
|
|
|
10
|
%
|
Unannualized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend Yield
|
|
|
0.49
|
%
|
|
|
0.51
|
%
|
|
|
0.50
|
%
|
|
|
0.61
|
%
|
|
|
0.54
|
%
|
|
|
0.53
|
%
|
Total Quarterly Return
|
|
|
2.08
|
%
|
|
|
6.69
|
%
|
|
|
(3.33
|
)%
|
|
|
(21.94
|
)%
|
|
|
6.02
|
%
|
|
|
10.73
|
%
|
|
|
|
105.7
|
|
|
|
122.4
|
|
|
|
129.1
|
|
|
|
81.4
|
|
|
|
102.9
|
|
|
|
111.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
KRX
|
|
12/31/2005
|
|
|
12/31/2006
|
|
|
12/31/2007
|
|
|
12/31/2008
|
|
|
12/31/2009
|
|
|
12/31/2010
|
|
|
Price Index
|
|
|
95.80
|
|
|
|
101.18
|
|
|
|
76.46
|
|
|
|
59.90
|
|
|
|
45.39
|
|
|
|
53.66
|
|
Capital Appreciation
|
|
|
|
|
|
|
3
|
%
|
|
|
(14
|
)%
|
|
|
(17
|
)%
|
|
|
4
|
%
|
|
|
15
|
%
|
Unannualized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend Yield
|
|
|
|
|
|
|
0.70
|
%
|
|
|
0.80
|
%
|
|
|
0.72
|
%
|
|
|
0.51
|
%
|
|
|
0.48
|
%
|
Total Quarterly Return
|
|
|
|
|
|
|
4.11
|
%
|
|
|
(13.57
|
)%
|
|
|
(16.12
|
)%
|
|
|
4.73
|
%
|
|
|
15.51
|
%
|
|
|
|
100.0
|
|
|
|
108.5
|
|
|
|
84.7
|
|
|
|
69.1
|
|
|
|
53.8
|
|
|
|
64.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RCKB
|
|
12/31/2005
|
|
|
12/31/2006
|
|
|
12/31/2007
|
|
|
12/31/2008
|
|
|
12/31/2009
|
|
|
12/31/2010
|
|
|
Price
|
|
|
13.05
|
|
|
|
17.85
|
|
|
|
12.20
|
|
|
|
13.97
|
|
|
|
10.50
|
|
|
|
12.22
|
|
Capital Appreciation
|
|
|
(2
|
)%
|
|
|
23
|
%
|
|
|
(14
|
)%
|
|
|
(11
|
)%
|
|
|
(2
|
)%
|
|
|
6
|
%
|
Unannualized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend Yield
|
|
|
0.00
|
%
|
|
|
0.28
|
%
|
|
|
0.28
|
%
|
|
|
0.32
|
%
|
|
|
0.47
|
%
|
|
|
0.57
|
%
|
Total Quarterly Return
|
|
|
(2.17
|
)%
|
|
|
23.46
|
%
|
|
|
(14.17
|
)%
|
|
|
(10.98
|
)%
|
|
|
(1.86
|
)%
|
|
|
6.92
|
%
|
|
|
|
124.5
|
|
|
|
171.2
|
|
|
|
118.3
|
|
|
|
137.5
|
|
|
|
105.3
|
|
|
|
100.5
|
|
42
|
|
Item 6.
|
Selected
Financial Data
|
Selected financial data for each of the years in the five-year
period ended December 31, 2010 are set forth below. The
consolidated financial statements and notes thereto as of
December 31, 2010 and 2009 and for each of the years in the
three-year period ended December 31, 2010 are included
elsewhere in this
Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Selected Financial Condition Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,678,073
|
|
|
$
|
1,571,134
|
|
|
$
|
1,533,073
|
|
|
$
|
1,327,012
|
|
|
$
|
1,232,836
|
|
Available for sale securities
|
|
|
125,447
|
|
|
|
102,751
|
|
|
|
141,250
|
|
|
|
136,372
|
|
|
|
132,467
|
|
Held to maturity securities
|
|
|
13,679
|
|
|
|
19,074
|
|
|
|
24,138
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank stock
|
|
|
17,007
|
|
|
|
17,007
|
|
|
|
17,007
|
|
|
|
11,168
|
|
|
|
9,836
|
|
Loans receivable, net
|
|
|
1,410,498
|
|
|
|
1,361,019
|
|
|
|
1,291,791
|
|
|
|
1,116,327
|
|
|
|
1,033,355
|
|
Cash and cash equivalents
|
|
|
60,708
|
|
|
|
19,307
|
|
|
|
14,901
|
|
|
|
23,998
|
|
|
|
22,381
|
|
Deposits
|
|
|
1,219,260
|
|
|
|
1,129,108
|
|
|
|
1,042,508
|
|
|
|
951,038
|
|
|
|
884,511
|
|
Mortgagors and investors escrow accounts
|
|
|
6,131
|
|
|
|
6,385
|
|
|
|
6,077
|
|
|
|
5,568
|
|
|
|
5,320
|
|
Advances from the Federal Home Loan Bank
|
|
|
261,423
|
|
|
|
263,802
|
|
|
|
322,882
|
|
|
|
201,741
|
|
|
|
178,110
|
|
Total stockholders equity
|
|
|
166,428
|
|
|
|
157,428
|
|
|
|
145,777
|
|
|
|
156,373
|
|
|
|
155,064
|
|
Allowance for loan losses
|
|
|
14,312
|
|
|
|
12,539
|
|
|
|
12,553
|
|
|
|
10,620
|
|
|
|
9,827
|
|
Non-performing loans(1)
|
|
|
12,360
|
|
|
|
12,046
|
|
|
|
10,435
|
|
|
|
1,569
|
|
|
|
1,493
|
|
|
|
|
(1) |
|
Non-performing loans include loans for which the Bank does not
accrue interest (non-accrual loans), loans 90 days past due
and still accruing interest and loans that have gone through
troubled debt restructurings. |
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands, except per share amounts)
|
|
|
Selected Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and dividend income
|
|
$
|
75,699
|
|
|
$
|
76,062
|
|
|
$
|
77,545
|
|
|
$
|
73,877
|
|
|
$
|
63,952
|
|
Interest expense
|
|
|
22,161
|
|
|
|
29,775
|
|
|
|
34,946
|
|
|
|
35,577
|
|
|
|
27,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
53,538
|
|
|
|
46,287
|
|
|
|
42,599
|
|
|
|
38,300
|
|
|
|
36,303
|
|
Provision for loan losses
|
|
|
4,109
|
|
|
|
1,961
|
|
|
|
2,393
|
|
|
|
749
|
|
|
|
1,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
49,429
|
|
|
|
44,326
|
|
|
|
40,206
|
|
|
|
37,551
|
|
|
|
34,622
|
|
Non-interest income (loss)
|
|
|
9,404
|
|
|
|
6,972
|
|
|
|
(8,987
|
)
|
|
|
5,194
|
|
|
|
4,625
|
|
Non-interest expense
|
|
|
39,850
|
|
|
|
36,631
|
|
|
|
33,762
|
|
|
|
30,301
|
|
|
|
29,025
|
|
Income (loss) before income taxes
|
|
|
18,983
|
|
|
|
14,667
|
|
|
|
(2,543
|
)
|
|
|
12,444
|
|
|
|
10,222
|
|
Income tax expense (benefit)
|
|
|
6,732
|
|
|
|
4,935
|
|
|
|
(956
|
)
|
|
|
4,116
|
|
|
|
3,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
12,251
|
|
|
$
|
9,732
|
|
|
$
|
(1,587
|
)
|
|
$
|
8,328
|
|
|
$
|
6,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
12,251
|
|
|
$
|
9,732
|
|
|
$
|
(1,587
|
)
|
|
$
|
8,328
|
|
|
$
|
6,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.66
|
|
|
$
|
0.53
|
|
|
$
|
(0.09
|
)
|
|
$
|
0.44
|
|
|
$
|
0.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.66
|
|
|
$
|
0.53
|
|
|
$
|
(0.09
|
)
|
|
$
|
0.44
|
|
|
$
|
0.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per share
|
|
$
|
0.245
|
|
|
$
|
0.20
|
|
|
$
|
0.20
|
|
|
$
|
0.16
|
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or for the Years Ended December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
Selected Financial Ratios and Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets
|
|
|
0.76
|
%
|
|
|
0.63
|
%
|
|
|
(0.11
|
)%
|
|
|
0.65
|
%
|
|
|
0.59
|
%
|
Return on average equity
|
|
|
7.48
|
|
|
|
6.44
|
|
|
|
(1.03
|
)
|
|
|
5.32
|
|
|
|
4.42
|
|
Interest rate spread(1)
|
|
|
3.19
|
|
|
|
2.73
|
|
|
|
2.63
|
|
|
|
2.52
|
|
|
|
2.75
|
|
Net interest margin(2)
|
|
|
3.49
|
|
|
|
3.10
|
|
|
|
3.09
|
|
|
|
3.13
|
|
|
|
3.30
|
|
Non-interest expense to average assets
|
|
|
2.48
|
|
|
|
2.36
|
|
|
|
2.35
|
|
|
|
2.37
|
|
|
|
2.52
|
|
Efficiency ratio(3)
|
|
|
63.31
|
|
|
|
68.78
|
|
|
|
100.45
|
|
|
|
69.67
|
|
|
|
70.92
|
|
Average interest-earning assets to average interest-bearing
liabilities
|
|
|
120.68
|
|
|
|
118.55
|
|
|
|
118.50
|
|
|
|
120.77
|
|
|
|
122.01
|
|
Dividend payout ratio
|
|
|
0.37
|
|
|
|
0.38
|
|
|
|
|
|
|
|
0.36
|
|
|
|
0.22
|
|
Capital Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital to total assets at end of year
|
|
|
9.92
|
|
|
|
10.02
|
|
|
|
9.51
|
|
|
|
11.78
|
|
|
|
12.58
|
|
Average capital to average assets
|
|
|
10.21
|
|
|
|
9.74
|
|
|
|
10.76
|
|
|
|
12.27
|
|
|
|
13.47
|
|
Total capital to risk-weighted assets
|
|
|
13.73
|
|
|
|
14.07
|
|
|
|
14.16
|
|
|
|
16.60
|
|
|
|
18.00
|
|
Tier I capital to risk-weighted assets
|
|
|
12.62
|
|
|
|
12.98
|
|
|
|
12.88
|
|
|
|
15.49
|
|
|
|
16.87
|
|
Tier I capital to total average assets
|
|
|
10.39
|
|
|
|
10.15
|
|
|
|
10.43
|
|
|
|
11.74
|
|
|
|
12.75
|
|
Asset Quality Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses as a percent of total loans
|
|
|
1.00
|
|
|
|
0.91
|
|
|
|
0.96
|
|
|
|
0.94
|
|
|
|
0.94
|
|
Allowance for loan losses as a percent of non-performing loans
|
|
|
115.79
|
|
|
|
104.09
|
|
|
|
120.30
|
|
|
|
676.86
|
|
|
|
658.20
|
|
Net charge-offs to average outstanding loans during the period
|
|
|
0.17
|
|
|
|
0.16
|
|
|
|
0.04
|
|
|
|
|
|
|
|
0.05
|
|
Non-performing loans as a percent of total loans
|
|
|
0.87
|
|
|
|
0.88
|
|
|
|
0.80
|
|
|
|
0.14
|
|
|
|
0.14
|
|
Non-performing assets as a percent of total assets
|
|
|
0.80
|
|
|
|
0.96
|
|
|
|
0.68
|
|
|
|
0.12
|
|
|
|
0.12
|
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of full service offices
|
|
|
18
|
|
|
|
18
|
|
|
|
17
|
|
|
|
16
|
|
|
|
14
|
|
Number of limited service offices
|
|
|
4
|
|
|
|
4
|
|
|
|
4
|
|
|
|
4
|
|
|
|
4
|
|
|
|
|
(1) |
|
Represents the difference between the weighted-average yield on
average interest-earning assets and the weighted-average cost of
interest-bearing liabilities. |
|
(2) |
|
Represents net interest income as a percent of average
interest-earning assets. |
|
(3) |
|
Represents non-interest expense divided by the sum of net
interest income and non-interest income. |
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operation
|
Overview
Rockville Financial, Inc. (the Company) is a bank
holding company formed on December 17, 2004. Rockville
Financial MHC, Inc. held 56.7% of the Old RFIs common
stock. It is the successor to its predecessor of the same name,
a mid-tier stock holding company (Old RFI). The
Company holds of all the common stock of Rockville Bank
(the Bank). The Bank provides a full range of
banking services to consumer and commercial customers through
its main office in Rockville and twenty one branches located in
Hartford, New London and Tolland Counties in Connecticut. The
Banks deposits are insured under the Deposit Insurance
Fund, which is administered by the Federal Deposit Insurance
Corporation.
The Company strives to remain a leader in meeting the financial
service needs of the local community and to provide quality
service to the individuals and businesses in the market areas
that it has served since
45
1858. Rockville Bank is a community-oriented provider of
traditional banking products and services to business
organizations and individuals, offering products such as
residential and commercial real estate loans, consumer loans and
a variety of deposit products. Our business philosophy is to
remain a community-oriented franchise and continue to focus on
providing superior customer service to meet the financial needs
of the communities in which we operate. Current strategies
include expanding our banking network by pursuing new branch
locations and branch acquisition opportunities in our market
area, continuing our residential mortgage lending activities
which comprise a majority of our loan portfolio and expanding
our commercial real estate and commercial business lending
activities.
Critical
Accounting Policies
The accounting policies followed by the Company and its
subsidiaries conform with accounting principles generally
accepted in the United States of America and with general
practices within the banking industry.
The Companys significant accounting policies are disclosed
in Note 2 to the accompanying Consolidated Financial
Statements. Critical accounting policies are defined as those
that are reflective of significant judgments and uncertainties,
and could potentially result in materially different results
under different assumptions and conditions. Given the
Companys strategy and asset/liability structure, the more
critical accounting policies, which involve the most complex,
subjective decisions or assessments, relate to allowance for
loan losses,
other-than-temporary
impairment of investment securities, the valuation of deferred
tax assets, pension and other post-retirement benefits and
share-based compensation.
See also Item 1. Business for further
discussion regarding the allowance for loan losses and
other-than-temporary
impairment of investment securities.
Net Interest Income Analysis: Average Balance Sheets,
Interest and Yields/Costs: The following tables
set forth average balance sheets, average yields and costs, and
certain other information for the periods indicated. No
tax-equivalent yield adjustments were made, as the effect
thereof was not material. All average balances are daily average
balances. Non-accrual loans were included in the computation of
average balances,
46
but have been reflected in the table as loans carrying a zero
yield. The yields set forth below include the effect of net
deferred costs and premiums that are amortized to interest
income or expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
Average
|
|
|
and
|
|
|
Yield/
|
|
|
Average
|
|
|
and
|
|
|
Yield/
|
|
|
Average
|
|
|
and
|
|
|
Yield/
|
|
|
|
Balance
|
|
|
Dividends
|
|
|
Cost
|
|
|
Balance
|
|
|
Dividends
|
|
|
Cost
|
|
|
Balance
|
|
|
Dividends
|
|
|
Cost
|
|
|
|
(Dollars in thousands)
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable, net
|
|
$
|
1,378,032
|
|
|
$
|
70,677
|
|
|
|
5.13
|
%
|
|
$
|
1,333,770
|
|
|
$
|
69,517
|
|
|
|
5.21
|
%
|
|
$
|
1,193,416
|
|
|
$
|
68,458
|
|
|
|
5.74
|
%
|
Total investment securities
|
|
|
126,111
|
|
|
|
5,012
|
|
|
|
3.97
|
|
|
|
140,494
|
|
|
|
6,544
|
|
|
|
4.66
|
|
|
|
168,913
|
|
|
|
8,580
|
|
|
|
5.08
|
|
Federal Home Loan Bank stock
|
|
|
17,007
|
|
|
|
|
|
|
|
|
|
|
|
17,007
|
|
|
|
|
|
|
|
|
|
|
|
13,812
|
|
|
|
473
|
|
|
|
3.42
|
|
Other earning assets
|
|
|
13,556
|
|
|
|
10
|
|
|
|
0.07
|
|
|
|
931
|
|
|
|
1
|
|
|
|
0.11
|
|
|
|
2,376
|
|
|
|
34
|
|
|
|
1.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
1,534,706
|
|
|
|
75,699
|
|
|
|
4.93
|
|
|
|
1,492,202
|
|
|
|
76,062
|
|
|
|
5.10
|
|
|
|
1,378,517
|
|
|
|
77,545
|
|
|
|
5.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-earning assets
|
|
|
68,992
|
|
|
|
|
|
|
|
|
|
|
|
59,606
|
|
|
|
|
|
|
|
|
|
|
|
57,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,603,698
|
|
|
|
|
|
|
|
|
|
|
$
|
1,551,808
|
|
|
|
|
|
|
|
|
|
|
$
|
1,435,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW and money market accounts
|
|
$
|
346,702
|
|
|
|
1,541
|
|
|
|
0.44
|
|
|
$
|
312,439
|
|
|
|
2,494
|
|
|
|
0.80
|
|
|
$
|
249,038
|
|
|
|
4,728
|
|
|
|
1.90
|
|
Savings accounts(1)
|
|
|
160,192
|
|
|
|
544
|
|
|
|
0.34
|
|
|
|
136,981
|
|
|
|
607
|
|
|
|
0.44
|
|
|
|
128,467
|
|
|
|
824
|
|
|
|
0.64
|
|
Time deposits
|
|
|
496,584
|
|
|
|
9,532
|
|
|
|
1.92
|
|
|
|
524,041
|
|
|
|
16,270
|
|
|
|
3.10
|
|
|
|
514,222
|
|
|
|
19,517
|
|
|
|
3.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits
|
|
|
1,003,478
|
|
|
|
11,617
|
|
|
|
1.16
|
|
|
|
973,461
|
|
|
|
19,371
|
|
|
|
1.99
|
|
|
|
891,727
|
|
|
|
25,069
|
|
|
|
2.81
|
|
Advances from the Federal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Loan Bank
|
|
|
268,274
|
|
|
|
10,544
|
|
|
|
3.93
|
|
|
|
285,258
|
|
|
|
10,404
|
|
|
|
3.65
|
|
|
|
271,545
|
|
|
|
9,877
|
|
|
|
3.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
1,271,752
|
|
|
|
22,161
|
|
|
|
1.74
|
%
|
|
|
1,258,719
|
|
|
|
29,775
|
|
|
|
2.37
|
%
|
|
|
1,163,272
|
|
|
|
34,946
|
|
|
|
3.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing liabilities
|
|
|
168,193
|
|
|
|
|
|
|
|
|
|
|
|
142,017
|
|
|
|
|
|
|
|
|
|
|
|
117,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,439,945
|
|
|
|
|
|
|
|
|
|
|
|
1,400,736
|
|
|
|
|
|
|
|
|
|
|
|
1,281,255
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
163,753
|
|
|
|
|
|
|
|
|
|
|
|
151,072
|
|
|
|
|
|
|
|
|
|
|
|
154,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
1,603,698
|
|
|
|
|
|
|
|
|
|
|
$
|
1,551,808
|
|
|
|
|
|
|
|
|
|
|
$
|
1,435,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
53,538
|
|
|
|
|
|
|
|
|
|
|
$
|
46,287
|
|
|
|
|
|
|
|
|
|
|
$
|
42,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest rate spread(2)
|
|
|
|
|
|
|
|
|
|
|
3.19
|
%
|
|
|
|
|
|
|
|
|
|
|
2.73
|
%
|
|
|
|
|
|
|
|
|
|
|
2.63
|
%
|
Net interest-earning assets(3)
|
|
$
|
262,954
|
|
|
|
|
|
|
|
|
|
|
$
|
233,483
|
|
|
|
|
|
|
|
|
|
|
$
|
215,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin(4)
|
|
|
|
|
|
|
|
|
|
|
3.49
|
%
|
|
|
|
|
|
|
|
|
|
|
3.10
|
%
|
|
|
|
|
|
|
|
|
|
|
3.09
|
%
|
Average interest-earning assets to average interest-bearing
liabilities
|
|
|
120.68
|
%
|
|
|
|
|
|
|
|
|
|
|
118.55
|
%
|
|
|
|
|
|
|
|
|
|
|
118.50
|
%
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes mortgagors and investors escrow accounts |
|
(2) |
|
Net interest rate spread represents the difference between the
yield on average interest-earning assets and the cost of average
interest-bearing liabilities. |
|
(3) |
|
Net interest-earning assets represent total interest-earning
assets less total interest-bearing liabilities. |
|
(4) |
|
Net interest margin represents the annualized net interest
income divided by average total interest-earning assets. |
47
Rate
Volume Analysis
The following table sets forth the effects of changing rates and
volumes on 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 volume and rate columns. For purposes of this table,
changes attributable to 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2010
|
|
|
Year Ended December 31, 2009
|
|
|
|
Compared to December 31, 2009
|
|
|
Compared to December 31, 2008
|
|
|
|
Increase (Decrease)
|
|
|
|
|
|
Increase (Decrease)
|
|
|
|
|
|
|
Due To
|
|
|
|
|
|
Due To
|
|
|
|
|
|
|
Volume
|
|
|
Rate
|
|
|
Net
|
|
|
Volume
|
|
|
Rate
|
|
|
Net
|
|
|
|
(In thousands)
|
|
|
Interest and dividend income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable
|
|
$
|
2,283
|
|
|
$
|
(1,123
|
)
|
|
$
|
1,160
|
|
|
$
|
7,637
|
|
|
$
|
(6,578
|
)
|
|
$
|
1,059
|
|
Securities interest, dividends & income from other
assets
|
|
|
(81
|
)
|
|
|
(1,442
|
)
|
|
|
(1,523
|
)
|
|
|
(1,210
|
)
|
|
|
(1,332
|
)
|
|
|
(2,542
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets
|
|
|
2,202
|
|
|
|
(2,565
|
)
|
|
|
(363
|
)
|
|
|
6,427
|
|
|
|
(7,910
|
)
|
|
|
(1,483
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW and money market accounts
|
|
|
250
|
|
|
|
(1,203
|
)
|
|
|
(953
|
)
|
|
|
991
|
|
|
|
(3,225
|
)
|
|
|
(2,234
|
)
|
Savings accounts
|
|
|
93
|
|
|
|
(156
|
)
|
|
|
(63
|
)
|
|
|
52
|
|
|
|
(269
|
)
|
|
|
(217
|
)
|
Time deposits
|
|
|
(813
|
)
|
|
|
(5,925
|
)
|
|
|
(6,738
|
)
|
|
|
367
|
|
|
|
(3,614
|
)
|
|
|
(3,247
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits
|
|
|
(470
|
)
|
|
|
(7,284
|
)
|
|
|
(7,754
|
)
|
|
|
1,410
|
|
|
|
(7,108
|
)
|
|
|
(5,698
|
)
|
FHLBB Advances
|
|
|
(641
|
)
|
|
|
781
|
|
|
|
140
|
|
|
|
500
|
|
|
|
27
|
|
|
|
527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
(1,111
|
)
|
|
|
(6,503
|
)
|
|
|
(7,614
|
)
|
|
|
1,910
|
|
|
|
(7,081
|
)
|
|
|
(5,171
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net interest income
|
|
$
|
3,313
|
|
|
$
|
3,938
|
|
|
$
|
7,251
|
|
|
$
|
4,517
|
|
|
$
|
(829
|
)
|
|
$
|
3,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparison
of Operating Results for the Year Ended December 31, 2010
to the Year Ended December 31, 2009
The Companys results of operations depend primarily on net
interest income, which is the difference between the interest
income from earning assets, such as loans and investments, and
the interest expense incurred on interest-bearing liabilities,
such as deposits and borrowings. The Company also generates
non-interest income, including service charges on deposit
accounts, mortgage servicing income, loan brokerage fees,
bank-owned life insurance income, safe deposit box rental fees,
investment brokerage fees, gains and losses on investment
securities, gains on the sale of loans, insurance commissions
and other miscellaneous fees. The Companys non-interest
expense primarily consists of employee compensation and
benefits, occupancy, equipment, and other non-interest expenses.
The Companys results of operations are also affected by
its provision for loan losses. The following discussion provides
a summary and comparison of the Companys operating results
for the years ended December 31, 2010 and 2009.
48
Income
Statement Summary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
$ Change
|
|
|
|
(In thousands)
|
|
|
Net interest income
|
|
$
|
53,538
|
|
|
$
|
46,287
|
|
|
$
|
7,251
|
|
Provision for loan losses
|
|
|
4,109
|
|
|
|
1,961
|
|
|
|
2,148
|
|
Non-interest income
|
|
|
9,404
|
|
|
|
6,972
|
|
|
|
2,432
|
|
Non-interest expense
|
|
|
39,850
|
|
|
|
36,631
|
|
|
|
3,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
18,983
|
|
|
|
14,667
|
|
|
|
4,316
|
|
Income tax provision
|
|
|
6,732
|
|
|
|
4,935
|
|
|
|
1,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
12,251
|
|
|
$
|
9,732
|
|
|
$
|
2,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
Summary
The Company had net income of $12.3 million for the year
ended December 31, 2010 compared to $9.7 million for
2009. When comparing 2010 to 2009, net interest income increased
$7.3 million, or 15.7%, the provision for loan losses
increased by $2.1 million, or 109.5%, and non-interest
income increased $2.4 million, or 34.9%. Non-interest
expense increased by $3.2 million, or 8.8%. In 2010, the
Company earned $0.66 per share on both a basic and diluted
earnings per share basis. In 2009, the Company earned $0.53 per
share on both a basic and diluted earnings per share basis.
Income before taxes increased $4.3 million to
$19.0 million for the year ending December 31, 2010
from $14.7 million for the same period in the prior year.
There were no losses from
other-than-temporary
impairment of securities for the year ended December 31,
2010 compared to $362,000 for the year ended December 31,
2009.
The increase in net interest income was primarily due to a
$29.5 million, or 12.6%, increase in average net
interest-earning assets and a 39 basis point increase in
the net interest margin. The $2.1 million increase in the
provision for loan losses from the prior year is attributable to
an increase in the provision deemed necessary as a result of our
evaluation of the required allowance amount based upon our
estimated probable losses in our loan portfolio. The increase in
the provision reflects the decline in economic activity within
our market area. The Companys non-performing assets;
however, declined to $13.4 million as of December 31,
2010 from $15.1 million as of December 31, 2009, the
result of write-downs and sales of other real estate owned
properties which were partially offset by the addition of
$1.6 million of troubled debt restructured loans.
At December 31, 2010, the Company had established an
allowance for loan losses of $14.3 million that was
disbursed between an allocated $13.8 million to cover
inherent risk in the homogenous pool evaluation, a $358,000
allocation to a $12.4 million impaired loan portfolio and a
$126,000 allocation for imprecision. During 2010, the impaired
loans increased from $12.0 million at December 31,
2009 to $12.4 million at December 31, 2010 with the
related impairment reserve decreasing from $381,000 to $358,000,
respectively. Collateral values were reassessed under current
market conditions and the specific impairment allocation in
relation to the total principal balance of impaired loans tested
fell from 3.16% at December 31, 2009 to 2.90% at
December 31, 2010. During this same period, the allocated
reserve for the performing pools increased from
$11.9 million at December 31, 2009 to
$13.8 million or from an 88 basis point allocation to
an 98 basis point allocation due primarily to a higher
level of residential loan delinquency.
At December 31, 2010, the allowance for loan losses totaled
$14.3 million or 1.00% of gross loans as compared with
0.91% at the prior year end. The majority of this increase is
attributable to the homogeneous pool allocation that rose from
88 basis points at December 31, 2009 to 98 basis
points at December 31, 2010. Management reviewed the
factors affecting the homogenous pool allocations and believes
that the allocations accurately reflect loss exposure based on
current portfolio performance and market conditions.
49
The $2.4 million increase in non-interest income is due to
a $2.2 million increase in service charges and fees,
primarily provided by Rockville Bank Mortgage, Inc., a $964,000
increase in net gains from the sale of loans and a $362,000
reduction of
other-than-temporary
impairment of securities offset by a $746,000 decrease in gains
on sales of securities and a $304,000 decrease in other income
related to gains and losses on sales of other real estate owned
properties which resulted in a net expense. The program to sell
fixed rate residential mortgages in the secondary market began
in 2009 and continued throughout 2010 driven by historically low
mortgage interest rates.
The $3.2 million increase in non-interest expense for 2010
compared to 2009 is primarily due to increases of
$1.5 million in salaries and employee benefits,
$1.4 million in other real estate owned expense, $676,000
in professional fees and $294,000 in marketing expense offset by
decreases of $606,000 in FDIC assessments and $88,000 in
occupancy and equipment expense.
Net Interest Income: Net interest income
before the provision for loan loss increased 15.7% to
$53.5 million for the year ended December 31, 2010,
compared to $46.3 million for the year ended
December 31, 2009. The increase is primarily due to a
$29.5 million, or 12.6%, increase in average net
interest-earning assets and a 39 basis point increase in
the net interest margin to 3.49% for the year ended
December 31, 2010 from 3.10% for the year ended
December 31, 2009. Average net interest-earning assets
increased to $263.0 million for the year ended
December 31, 2010 from $233.5 million for the prior
year.
Interest and Dividend Income: Interest and
dividend income decreased 0.5% to $75.7 million for the
year ended December 31, 2010 from $76.1 million for
the year ended December 31, 2009. Interest income on loans
receivable increased by 1.7% to $70.7 million for the year
ended December 31, 2010 from $69.5 million for the
year ended December 31, 2009 primarily due to a 3.3%
increase in average loans receivable which was offset by an
8 basis point decline in the average yield. The average
loan yield for the year ended December 31, 2010 decreased
to 5.13% from 5.21% compared to the same period in the prior
year. The prime rate used as an index to re-price various
commercial and home equity adjustable rate loans was 3.25%,
unchanged from December 31, 2009. Interest and dividend
income on securities decreased to $5.0 million for the year
ended December 31, 2010 from $6.5 million for the year
ended December 31, 2009, attributable to a
$14.4 million decrease in average securities and a
69 basis point decrease in the average yield on securities.
Interest Expense: Interest expense for the
year ended December 31, 2010 decreased 25.6% to
$22.2 million from $29.8 million for the year ended
December 31, 2009. The decrease in interest expense for the
year ended December 31, 2010 compared to the same period in
the prior year was attributable to a decline in the
weighted-average rate paid due to a falling rate environment
offset by an increase in average outstandings. For the year
ended December 31, 2010, average interest-bearing
liabilities rose 1.0% to $1.27 billion from
$1.26 billion for the year ended December 31, 2009.
The average rate paid on interest-bearing liabilities for the
year ended December 31, 2010 decreased 63 basis points
to 1.74% from 2.37% for the year ended December 31, 2009.
For the year ended December 31, 2010, average core deposits
increased $57.5 million to $506.9 million.
Provision for Loan Losses: Management recorded
a provision of $4.1 million for the year ended
December 31, 2010, an increase of $2.1 million
compared to the year ended December 31, 2009 as a result of
an evaluation of the loan portfolio and estimated allowance
requirements. A significant portion of the increase was due to
increased general reserves as a result of the continued economic
downturn and growth in commercial lending. In 2010, total loans
increased $51.4 million compared to $70.0 million in
2009. At December 31, 2010, the allowance for loan losses
totaled $14.3 million, or 115.8% of non-performing loans
and 1.0% of total loans, compared to $12.5 million at
December 31, 2009, or 104.1% of non-performing loans and
0.91% of total loans. The Company experienced net loan
charge-offs of $2.3 million in 2010 compared with net
charge-offs of $2.0 million in 2009.
Non-interest Income: Sources of non-interest
income primarily include banking service charges on deposit
accounts, Infinex brokerage and insurance fees, Rockville Bank
Mortgage, Incs loan broker fees, bank-owned life
insurance, gains and losses on investment securities, gains on
sale of loans, mortgage servicing income, safe deposit box
rental fees, brokerage fees and insurance commissions.
Other-than-temporary
impairment of securities is also included in non-interest income.
50
Non-interest income was $9.4 million for the year ended
December 31, 2010, and included no
other-than-temporary
impairment charges compared to $362,000 of
other-than-temporary
impairment charges during the year ended December 31, 2009.
Service charges and fees increased $2.2 million which
primarily resulted from loan fee income generated by Rockville
Bank Mortgage, Inc. totaling $2.2 million and an increase
of $394,000 in ATM fees mainly due to the elimination of service
charge waivers to SUM network customers in 2010. Reductions in
the collection of service charge fees were recorded in Infinex
brokerage and insurance of $58,000, net overdraft fees of
$281,000 and $51,000 in NOW and demand deposit fees.
Non-interest Expense: Non-interest expense
increased by $3.2 million, or 8.8%, to $39.8 million
for the year ended December 31, 2010 from
$36.6 million for the year ended December 31, 2009.
The following table summarizes non-interest expense for the
years ended December 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
(Dollars in thousands)
|
|
|
Salaries and employee benefits
|
|
$
|
20,032
|
|
|
$
|
18,571
|
|
|
$
|
1,461
|
|
|
|
7.9
|
%
|
Service bureau fees
|
|
|
4,048
|
|
|
|
3,872
|
|
|
|
176
|
|
|
|
4.6
|
|
Occupancy and equipment
|
|
|
4,292
|
|
|
|
4,380
|
|
|
|
(88
|
)
|
|
|
(2.0
|
)
|
Professional fees
|
|
|
1,807
|
|
|
|
1,131
|
|
|
|
676
|
|
|
|
59.8
|
|
Marketing and promotions
|
|
|
1,450
|
|
|
|
1,156
|
|
|
|
294
|
|
|
|
25.4
|
|
FDIC assessments
|
|
|
1,616
|
|
|
|
2,222
|
|
|
|
(606
|
)
|
|
|
(27.3
|
)
|
Other real estate owned
|
|
|
1,435
|
|
|
|
69
|
|
|
|
1,366
|
|
|
|
1,979.7
|
|
Other
|
|
|
5,170
|
|
|
|
5,230
|
|
|
|
(60
|
)
|
|
|
(1.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense
|
|
$
|
39,850
|
|
|
$
|
36,631
|
|
|
$
|
3,219
|
|
|
|
8.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes Directors fees and expenses for the years ended
December 31, 2010 and 2009 of $803,000 and $769,000,
respectively. |
The $1.5 million increase in salary and employee benefits
includes a $1.9 million increase in regular salary expense,
a $524,000 increase in bonus accruals and a $136,000 increase in
health insurance expense offset by a $796,000 decrease in
pension expense, a $139,000 decrease in ESOP expense and
$204,000 decrease in all other benefits expense. Regular salary
expenses increased due to the growth in the number of full-time
equivalent employees to 236 from 211 at December 31, 2009
as a result of adding 24 new employees through the acquisition
of Rockville Bank Mortgage, Inc. in January 2010. The decrease
in pension costs was the result of lower net periodic benefit
costs in 2010 than in 2009 as calculated by the Companys
benefit consultant and actuary firm. Bonus accruals increased in
2010 over 2009 as a result of the Companys growth in the
number of employees and in anticipation of meeting certain
incentive goals in 2010 compared to 2009.
The $143,000 decrease in restricted stock expense is due to the
nonparticipation of two participants in the 2010 award who did
participate in the 2009 award. In addition, their participation
in the 2009 award led to the acceleration of expense in 2009
resulting from the immediate vesting of the entire award because
they were retirement-eligible.
Occupancy and equipment expense decreased $88,000, or 2.0%, over
the prior year due to decreases in depreciation expense on our
buildings and furniture and equipment attributable to fewer
capital purchases and improvements in 2010 compared to the prior
year.
FDIC assessment expense decreased $606,000, or 27.3%, in 2010
from the 2009 expense which included a special $700,000 one-time
assessment. An 8% increase in deposits in 2010 partially reduced
the effect of the one-time assessment.
51
Other non-interest expense increased $60,000, or 1.1%, in 2010
over the prior year. Significant components of other
non-interest expense are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
2010
|
|
2009
|
|
$ Change
|
|
% Change
|
|
|
(Dollars in thousands)
|
|
Directors fees and expenses
|
|
$
|
803
|
|
|
$
|
769
|
|
|
$
|
34
|
|
|
|
4.4
|
%
|
Collections
|
|
|
375
|
|
|
|
463
|
|
|
|
(88
|
)
|
|
|
(19.0
|
)
|
Off-balance sheet provision (credit)
|
|
|
(285
|
)
|
|
|
(47
|
)
|
|
|
(238
|
)
|
|
|
(506.4
|
)
|
Telephone
|
|
|
216
|
|
|
|
174
|
|
|
|
42
|
|
|
|
24.1
|
|
Postage
|
|
|
418
|
|
|
|
395
|
|
|
|
23
|
|
|
|
5.8
|
|
Courier
|
|
|
317
|
|
|
|
331
|
|
|
|
(14
|
)
|
|
|
(4.2
|
)
|
Dues and subscriptions
|
|
|
230
|
|
|
|
215
|
|
|
|
15
|
|
|
|
7.0
|
|
Service charges
|
|
|
165
|
|
|
|
188
|
|
|
|
(23
|
)
|
|
|
(12.2
|
)
|
Printing and forms
|
|
|
356
|
|
|
|
328
|
|
|
|
28
|
|
|
|
8.5
|
|
Other
|
|
|
2,575
|
|
|
|
2,414
|
|
|
|
161
|
|
|
|
6.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other non-interest expense
|
|
$
|
5,170
|
|
|
$
|
5,230
|
|
|
$
|
(60
|
)
|
|
|
(1.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collections expense was $375,000 in 2010 compared to $463,000 in
2009, a decrease of $88,000 due to higher legal and other third
party costs in 2009 associated with 5 commercial loans prior to
foreclosure. Off-balance sheet provision declined $238,000
compared to 2009 due to the removal of one commercial
customers letter of credit that was fully reserved for
$240,000. Other expense was $2.6 million in 2010 compared
to $2.4 million in 2009, an increase of $161,000, or 6.7%.
This increase was mainly attributable to the addition of
Rockville Bank Mortgage, Inc. in January 2010 which included
additional human resource expense of $62,000, office supplies of
$52,000 and $14,000 of mortgage appraisal and credit reports.
Income Tax Expense: In 2010, the Company had
income tax expense of $6.7 million on pretax earnings of
$19.0 million compared to $4.9 million in income tax
expense on pretax earnings of $14.7 million in 2009. The
effective tax rate was 35.5% and 33.6% for the years ended
December 31, 2010 and 2009, respectively. The effective tax
rate differed from the statutory rate of 34% for the years ended
December 31, 2010 and 2009 primarily due to the
preferential tax treatment of the corporate dividends received
and non-taxable earnings on bank-owned life insurance and
municipal investments. In addition, in 2010 the Company began
paying Massachusetts state income tax on a portion of our net
income.
Comparison
of Operating Results for the Year Ended December 31, 2009
to the Year Ended December 31, 2008
The Companys results of operations depend primarily on net
interest income, which is the difference between the interest
income from earning assets, such as loans and investments, and
the interest expense incurred on interest-bearing liabilities,
such as deposits and borrowings. The Company also generates
non-interest income, including service charges on deposit
accounts, mortgage servicing income, bank-owned life insurance
income, safe deposit box rental fees, brokerage fees, gains and
losses on investment securities, insurance commissions and other
miscellaneous fees. The Companys non-interest expense
primarily consists of employee compensation and benefits,
occupancy, equipment, and other non-interest expenses. The
Companys results of operations are also affected by its
provision for loan losses. The following discussion provides a
summary and comparison of the Companys operating results
for the years ended December 31, 2009 and 2008.
52
Income
Statement Summary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
(Dollars in thousands)
|
|
|
Net interest income
|
|
$
|
46,287
|
|
|
$
|
42,599
|
|
|
$
|
3,688
|
|
|
|
8.7
|
%
|
Provision for loan losses
|
|
|
1,961
|
|
|
|
2,393
|
|
|
|
(432
|
)
|
|
|
(18.1
|
)
|
Non-interest income (loss)
|
|
|
6,972
|
|
|
|
(8,987
|
)
|
|
|
15,959
|
|
|
|
177.6
|
|
Non-interest expense
|
|
|
36,631
|
|
|
|
33,762
|
|
|
|
2,869
|
|
|
|
8.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) before income taxes
|
|
|
14,667
|
|
|
|
(2,543
|
)
|
|
|
17,210
|
|
|
|
676.8
|
|
Provision (Benefit) for income taxes
|
|
|
4,935
|
|
|
|
(956
|
)
|
|
|
5,891
|
|
|
|
616.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
9,732
|
|
|
$
|
(1,587
|
)
|
|
$
|
11,319
|
|
|
|
713.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
Summary
General: The Company had net income of
$9.7 million for the year ended December 31, 2009
compared to a net loss of $1.6 million for 2008. When
comparing 2009 to 2008, net interest income increased
$3.7 million, or 8.7%, the provision for loan losses
decreased by $432,000, or 18.1%, and non-interest income
increased $16.0 million. Non-interest expense increased by
$2.9 million, or 8.5%. In 2009, the Company earned $0.53
per share on both a basic and diluted earnings per share basis.
In 2008, the Company lost $0.09 per share on both a basic and
diluted earnings per share basis.
Income before taxes increased $17.2 million to
$14.7 million for the year ending December 31, 2009
from a loss before taxes of $2.5 million for the same
period in the prior year. Losses from
other-than-temporary
impairment of securities were $362,000 for the year ended
December 31, 2009 compared to $14.9 million for the
year ended December 31, 2008, and were the primary change
in non-interest income (loss) between both periods. Expenses
relating to the issuance of restricted stock and stock options
decreased $905,000 to $838,000 for the year ended
December 31, 2009 when compared to $1.7 million for
the year ended December 31, 2008. The decrease in
restricted stock expense from the prior year reflects the fact
that a significant portion of the expense related to the 2008
stock grant that vests over a four year period was accelerated
for retirement-eligible officers who had constructively earned
the award granted.
The increase in net interest income was primarily due to an
$18.2 million, or 8.7%, increase in average net
interest-earning assets and a one basis point increase in the
net interest margin. The $432,000 decrease in the provision for
loan losses from the prior year is attributable to a decrease in
the provision deemed necessary as a result of our evaluation of
the required allowance amount based upon probable and reasonably
estimable losses in our loan portfolio.
At December 31, 2008, the Company had established an
allowance for loan losses of $12.6 million that was
disbursed between an allocated $11.9 million to cover
embedded risk in the homogenous pool evaluation, a $473,000
allocation to $10.1 million portfolio component that was
segregated for specific impairment analysis and a $212,000
allocation for imprecision. During 2009, the impaired loans
increased from $10.4 million at December 31, 2008 to a
high of $15.4 million at September 30, 2009 with the
related impairment reserve rising from $473,000 to
$1.1 million, respectively. Collateral values were
reassessed under current market conditions and the specific
impairment allocation in relation to the total principal balance
of loans tested rose from 4.70% at December 31, 2008 to
7.20% at September 30, 2009. During this same period, the
allocated reserve for the performing pools fell slightly from
$11.9 million at December 31, 2008 to
$11.4 million or from a 92 basis point allocation to
an 85 basis point allocation as some embedded risk was more
specifically identified in the rising level of non-performing
loans.
In the last quarter of 2009 charge-offs in excess of $700,000
were recognized on loans specifically tested for impairment at
September 30, 2009. This reduction in conjunction with
transfer of a large
sub-division
loan into other real estate owned during the quarter
significantly reduced the impaired loan total from
$15.4 million
53
at September 30, 2009 to $12.0 million at
December 31, 2009 and resulted in a lower specific reserve
of $381,000 at year-end.
At December 31, 2009, allowance for loan losses totaled
$12.5 million or 91 basis points of gross loans as
compared with 96 basis points at the prior year end. The
majority of this decrease is attributable to the homogeneous
pool allocation that fell from 92 basis points at
December 31, 2008 to 88 basis points at
December 31, 2009 as the level of embedded risk migrated to
specific non-performance and the subsequent recognition of loss
by the Company. Management reviewed the factors affecting the
homogenous pool allocations and believes that the allocations
accurately reflect loss exposure based on current portfolio
performance and market conditions.
The $16.0 million increase in non-interest income is due to
a $14.5 million decrease in the
other-than-temporary
impairment of securities, a $555,000 increase in gains on sales
of securities and a $782,000 increase in gains sales of loans.
The program to sell fixed rate residential mortgages in the
secondary market began in 2009 driven by historically low
mortgage interest rates.
The $2.9 million increase in non-interest expense is
primarily due to an increase of $1.6 million in FDIC
assessments for 2009, an increase of $1.4 million in
salaries and employee benefits, and a $277,000 increase in
occupancy costs. Expense reductions in professional fees and
marketing expenses of $353,000 and $159,000, respectively, were
realized.
Net Interest Income: Net interest income
before the provision for loan loss increased 8.7% to
$46.3 million for the year ended December 31, 2009,
compared to $42.6 million for the year ended
December 31, 2008. The increase is primarily due to an
$18.2 million, or 8.5% increase in average net
interest-earning assets and a 1 basis point increase in the
net interest margin to 3.10% for the year ended
December 31, 2009 from 3.09% for the year ended
December 31, 2008. Average net interest-earning assets
increased to $233.5 million for the year ended
December 31, 2009 from $215.2 million for the prior
year.
Interest and Dividend Income: Interest and
dividend income decreased 1.9% to $76.1 million for the
year ended December 31, 2009 from $77.5 million for
the year ended December 31, 2008. Interest income on loans
receivable increased by 1.5% to $69.5 million for the year
ended December 31, 2009 from $68.5 million for the
year ended December 31, 2008 primarily due to an 11.8%
increase in average loans receivable which was offset by a
53 basis point decline in the average yield. The average
loan yield for the year ended December 31, 2009 decreased
to 5.21% from 5.74% compared to the same period in the prior
year. The prime rate used as an index to re-price various
commercial and home equity adjustable rate loans was 3.25%,
unchanged from December 31, 2008. Interest and dividend
income on securities decreased to $6.5 million for the year
ended, December 31, 2009 from $8.6 million for the
year ended December 31, 2008 attributable to both a
$28.4 million decrease in average securities and a
42 basis point decrease in the average yield on securities
for the year ended December 31, 2009 compared to the year
ended December 31, 2008.
Interest Expense: Interest expense for the
year ended December 31, 2009 decreased 14.8% to
$29.8 million from $34.9 million for the year ended
December 31, 2008. The decrease in interest expense for the
year ended December 31, 2009 compared to the same period in
the prior year was attributable to a decline in the
weighted-average rate paid due to a falling rate environment
offset by an increase in average outstandings. For the year
ended December 31, 2009, average interest-bearing
liabilities rose 8.2% to $1.3 billion from
$1.2 billion for the year ended December 31, 2008. The
average rate paid on interest-bearing liabilities for the year
ended December 31, 2009 decreased 63 basis points to
2.37% from 3.00% for the year ended December 31, 2008. For
the year ended December 31, 2009, average core deposits
increased to $564.2 million from $474.4 million for
the year ended December 31, 2008.
Provision for Loan Losses: Management recorded
a provision of $2.0 million for the year ended
December 31, 2009, a decrease of $432,000 compared to the
year ended December 31, 2008 as a result of an evaluation
of the loan portfolio and estimated allowance requirements. A
significant portion of the decline was due to a decrease in the
level of growth during the year. In 2008, total loans increased
$178 million while in 2009, total loans increased
$70 million. At December 31, 2009, the allowance for
loan losses totaled $12.5 million, or 104.1% of
non-performing loans and 0.91% of total loans,
compared to $12.6 million at
54
December 31, 2008, or 120.3% of non-performing loans and
0.96% of total loans. The Company experienced net loan
charge-offs of $2.0 million in 2009 compared with net
charge-offs of $460,000 in 2008. The increase in loan
charge-offs is primarily attributable to 2 borrowers and the
recognition of collateral impairment on 2
sub-division
projects during 2009.
Non-interest Income (Loss): Sources of
non-interest income primarily include banking service charges on
deposit accounts, Infinex brokerage and insurance fees,
bank-owned life insurance and mortgage servicing income.
Other-than-temporary
impairment of securities are also included in non-interest
income (loss).
Non-interest income (loss) was $7.0 million for the year
ended December 31, 2009, and included
other-than-temporary
impairment charges of totaling $362,000 compared to
$14.9 million of
other-than-temporary
impairment charges during the year ended December 31, 2008.
Other-than-temporary
impairment charges in 2009 were comprised of $297,000 related to
five common stocks and $65,000 related to one mutual fund.
Service charges and fees increased $90,000 which is primarily
comprised of an increase of $294,000 in ATM fees due to
increased volume in debit card transactions and a $64,000
increase in safe deposit fees. Service charge fee reductions
were recorded in Infinex brokerage and insurance fees of
$163,000, overdraft fees of $70,000 and $33,000 in reverse
mortgage commissions and fees.
Non-interest Expense: Non-interest expense
increased by $2.9 million, or 8.5%, to $36.6 million
for the year ended December 31, 2009 from
$33.8 million for the year ended December 31, 2008.
The following table summarizes non-interest expense for the
years ended December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
(Dollars in thousands)
|
|
|
Salaries and employee benefits
|
|
$
|
18,571
|
|
|
$
|
17,150
|
|
|
$
|
1,421
|
|
|
|
8.3
|
%
|
Service bureau fees
|
|
|
3,872
|
|
|
|
3,808
|
|
|
|
64
|
|
|
|
1.7
|
|
Occupancy and equipment
|
|
|
4,380
|
|
|
|
4,103
|
|
|
|
277
|
|
|
|
6.8
|
|
Professional fees
|
|
|
1,131
|
|
|
|
1,484
|
|
|
|
(353
|
)
|
|
|
(23.8
|
)
|
Marketing and promotions
|
|
|
1,156
|
|
|
|
1,315
|
|
|
|
(159
|
)
|
|
|
(12.1
|
)
|
FDIC assessments
|
|
|
2,222
|
|
|
|
654
|
|
|
|
1,568
|
|
|
|
239.8
|
|
Other(1)
|
|
|
5,299
|
|
|
|
5,248
|
|
|
|
51
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense
|
|
$
|
36,631
|
|
|
$
|
33,762
|
|
|
$
|
2,869
|
|
|
|
8.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes Directors fees and expenses for the years ended
December 31, 2009 and 2008 of $769,000 and $829,000,
respectively. |
The $1.4 million increase in salary and employee benefits
includes a $1.2 million increase in pension expense, a
$443,000 increase in bonuses, offset by an $821,000 decrease in
restricted stock compensation expense. The increase in pension
costs was the result of higher net periodic benefit costs in
2009 than in 2008 as calculated by the Companys benefit
consultant and actuary firm. Bonuses increased in 2009 over 2008
as a result of the Companys loss incurred in 2008 which
reduced the payout in 2008.
The $821,000 decrease in restricted stock expense from the prior
year reflects the fact that a significant portion of the expense
related to the 2008 stock grant that vests over a four year
period was accelerated for retirement-eligible officers in 2008
who had constructively earned the award granted.
Occupancy and equipment expense increased $277,000, or 6.8%,
over the prior year due to increases in rent expense, utilities,
property taxes, and depreciation expense on our buildings and
furniture and equipment attributable to the June 2008 opening of
the new Colchester Branch and January 2009 opening of the
Manchester Branch.
55
FDIC assessments expense increased $1.6 million, or 239.8%,
in 2009 from 2008 caused by a special one-time assessment of
$700,000, increased assessments resulting from a greater level
of deposits and higher FDIC assessment rates in 2009.
Other non-interest expense increased $51,000, or 1.0%, in 2009
over the prior year. Significant components of other
non-interest expense are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
(Dollars in thousands)
|
|
|
Directors fees and expenses
|
|
$
|
769
|
|
|
$
|
829
|
|
|
$
|
(60
|
)
|
|
|
(7.2
|
)%
|
Collections
|
|
|
463
|
|
|
|
29
|
|
|
|
434
|
|
|
|
1518.9
|
|
Off-balance sheet provision
|
|
|
(47
|
)
|
|
|
230
|
|
|
|
(277
|
)
|
|
|
(120.4
|
)
|
Telephone
|
|
|
174
|
|
|
|
202
|
|
|
|
(28
|
)
|
|
|
(13.9
|
)
|
Postage
|
|
|
395
|
|
|
|
383
|
|
|
|
12
|
|
|
|
3.1
|
|
Courrier
|
|
|
331
|
|
|
|
344
|
|
|
|
(13
|
)
|
|
|
(3.8
|
)
|
Dues and subscritions
|
|
|
215
|
|
|
|
228
|
|
|
|
(13
|
)
|
|
|
(5.7
|
)
|
Service charges
|
|
|
188
|
|
|
|
183
|
|
|
|
5
|
|
|
|
2.7
|
|
Printing and forms
|
|
|
328
|
|
|
|
431
|
|
|
|
(103
|
)
|
|
|
(23.9
|
)
|
Other
|
|
|
2,483
|
|
|
|
2,389
|
|
|
|
94
|
|
|
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other non-interest expense
|
|
$
|
5,299
|
|
|
$
|
5,248
|
|
|
$
|
51
|
|
|
|
1.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collection expense was $463,000 in 2009 compared to $29,000 in
2008, an increase of $434,000 due to legal and other third party
costs associated with 5 commercial loans prior to foreclosure.
Off-balance sheet provision declined $277,000 compared to 2008
due to a reduction of off-balance sheet unfunded commitments for
2009 compared to the total unfunded commitments for 2008. Other
expense was $2.5 million in 2009 compared to
$2.4 million in 2008, an increase of $94,000, or 3.9%. The
increase in 2009 included $60,000 of additional appraisal and
credit report expense, $69,000 of OREO expense which there was
none in 2008, and $46,000 of additional mortgage loan servicing
expense. These increases were partially offset by expense
reductions in travel expense of $60,000.
Income Tax Expense: Due to net income of
$9.7 million in 2009, the Company had income tax expense of
$4.9 million compared to an income tax benefit of $956,000
in 2008. The effective tax rate was 33.6% and 37.6% for the
years ended December 31, 2009 and 2008, respectively. The
effective tax rate differed from the statutory rate of 34% for
the years ended December 31, 2009 and 2008 primarily due to
the preferential tax treatment of the corporate dividends
received and non-taxable earnings on bank-owned life insurance
and municipal investments.
Comparison
of Financial Condition at December 31, 2010 and
December 31, 2009
Summary: The Companys total assets
increased $106.9 million, or 6.8%, to $1.68 billion at
December 31, 2010, as compared to $1.57 billion at
December 31, 2009, primarily due to a $49.5 million
increase in net loans, a $41.4 million increase in cash and
cash equivalents and a $17.3 million increase in investment
securities. This growth was funded primarily with the proceeds
received from additional deposits of $90.2 million and
increased capital of $9.0 million. Total capital increased
to $166.4 million, or 5.7%, at December 31, 2010 from
$157.4 million at December 31, 2009.
Securities: Available for sale investment
securities increased $22.7 million, or 22.1%, to
$125.4 million at December 31, 2010 from
$102.8 million at December 31, 2009. The Company
started purchasing held to maturity securities in 2008
consisting of long-term mortgage-backed securities and at
December 31, 2010 had $13.7 million in securities held
to maturity compared to $19.1 million at December 31,
2009. At December 31, 2010 and 2009, the net unrealized
gain on investment securities available for sale was
$4.0 million, net of taxes. The low interest rate
environment during 2010 had a negative effect on the fair value
of the Companys
56
LIBOR-based variable rate debt securities during the period.
That impact was offset by increased unrealized gains on
marketable equity securities.
Lending Activities: Net loans receivable
increased $49.5 million, or 3.6%, to $1.41 billion at
December 31, 2010 from $1.36 billion at
December 31, 2009 primarily due to increases in commercial
real estate loans and commercial business loans.
Residential real estate loans decreased $34.9 million, or
4.6%, to $719.9 million at December 31, 2010 due to
the Companys decision to sell $71.1 million of fixed
rate residential loans in the secondary market to Freddie Mac as
a result of the historically low market rates. Real estate
construction loans increased $7.5 million, or 10.6%, to
$78.6 million at December 31, 2010. Commercial real
estate loans increased $63.5 million, or 14.9%, to
$489.5 million at December 31, 2010. This increase in
commercial real estate loans reflects the expansion of existing
borrowing relationships and the continued success of the
regional commercial real estate program.
The allowance for loan losses increased $1.8 million to
$14.3 million at December 31, 2010 from
$12.5 million at December 31, 2009. The increase in
the allowance for loan losses resulted from a $4.1 million
provision for loan losses for the year ended December 31,
2010 which was offset by $2.3 million of net charge-offs.
The allowance was deemed adequate based upon managements
estimate of probable estimated loan losses inherent in the loan
portfolio and the growth of the loan portfolio. At
December 31, 2010, the allowance for loan losses
represented 1.00% of total loans and 115.79% of non-performing
loans, compared to 0.91% of total loans and 104.1% of
non-performing loans as of December 31, 2009.
Deposits: Deposits increased
$90.2 million, or 8.0%, to $1.22 billion at
December 31, 2010 from $1.13 billion at
December 31, 2009. The growth was principally attributable
to a $51.9 million increase in time deposits which resulted
from a special fourteen month deposit promotion implemented in
the third quarter of 2010. Core deposits increased
$38.3 million in 2010 led by demand deposit growth of
$18.3 million to $168.7 million and regular savings
balance growth of $18.5 million to $162.1 million at
December 31, 2010. NOW accounts grew $9.2 million to
$117.3 million at December 31, 2010, up 8.5% from the
prior year end. Money market and investment savings accounts
decreased $7.7 million, or 3.3%, to $227.0 million at
December 31, 2010 from $234.7 million at
December 31, 2009. The funds generated from the increases
in deposits were used to fund loan growth and short-term
investments and reduce FHLBB advances during the period.
Liquidity and Capital Resources: Liquid assets
are maintained at levels considered adequate to meet the
Companys liquidity needs. Liquidity levels are adjusted to
fund loan commitments, repay borrowings, fund deposit outflows
and pay real estate taxes on mortgage loans held for investment.
Liquidity is also adjusted as appropriate to meet asset and
liability management objectives.
The Companys primary sources of liquidity are deposits,
advances from the Federal Home Loan Bank of Boston, amortization
and prepayment of loans, maturities of investment securities and
other short-term investments, periodic principal repayments on
mortgage-backed securities and earnings and funds provided from
operations. Although not currently utilized, the Company also
has available lines of credit with two deposit brokers, as well
as, for unsecured federal funds. 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. Interest rates on deposits are priced to
maintain a desired level of total deposits.
A portion of the Companys liquidity consists of cash and
cash equivalents, which are a product of operating, investing
and financing activities. At December 31, 2010 and 2009,
respectively, $60.7 million and $19.3 million of the
Companys assets were invested in cash and cash
equivalents. The primary sources of cash are principal
repayments on loans, proceeds from the calls and maturities of
investment securities, increases in deposit accounts and
advances from the Federal Home Loan Bank of Boston.
During the years ended December 31, 2010 and 2009, loan
originations and purchases, net of collected principal and loan
sales, totaled $57.8 million and $74.5 million,
respectively, reflecting continued growth in the loan portfolio
due to a favorable interest rate environment. Cash received from
the calls and maturities of
57
investment securities totaled $29.7 million and
$2.5 million during the years ended December 31, 2010
and 2009, respectively. The Company purchased $73.6 million
and $8.1 million and received proceeds from the sale of
available for sale investment securities of $399,000 and
$21.2 million during the years ended December 31, 2010
and 2009, respectively. The Company started purchasing held to
maturity securities in 2008 consisting of long term
mortgage-backed securities and at December 31, 2010 had
$13.7 million in securities held to maturity compared to
$19.1 million at December 31, 2009.
Deposit flows are generally affected by the level of our
interest rates, the interest rates and products offered by local
competitors, and other factors. The net increases in total
deposits were $90.2 million and $86.6 million for the
years ended December 31, 2010 and 2009, respectively. The
Company experienced higher deposit levels in 2010 due to new
branch promotions and disintermediation from investment firms
due to increasing uncertainty in the financial markets and an
historically low interest rate environment.
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 Federal Home Loan Bank of Boston, which provide an
additional source of funds. At December 31, 2010, the
Company had $261.4 million in advances from the Federal
Home Loan Bank of Boston and an additional available borrowing
limit of $120.2 million based on collateral requirements of
the Federal Home Loan Bank of Boston. The Companys
internal policies limit borrowings to 30% of total assets, or
$503.4 million at December 31, 2010.
At December 31, 2010, the Company had outstanding
commitments to originate loans of $69.0 million and
unfunded commitments under lines of credit and stand-by letters
of credit of $302.5 million. At December 31, 2010,
time deposits scheduled to mature in less than one year totaled
$369.4 million. 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 our
deposits are not retained by the Company, other funding sources
will be utilized, such as Federal Home Loan Bank of Boston
advances, brokered deposits from two available lines, and an
unsecured federal funds line of credit in order to maintain the
level of assets. Alternatively, the Company would reduce the
level of liquid assets, such as 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 following tables present information indicating various
obligations and commitments made by the Company as of
December 31, 2010 and the respective maturity dates:
Contractual
Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
More than
|
|
|
More than
|
|
|
|
|
|
|
|
|
|
|
|
|
One Year
|
|
|
Three Years
|
|
|
|
|
|
|
|
|
|
One Year
|
|
|
Through
|
|
|
Through
|
|
|
Over Five
|
|
|
|
Total
|
|
|
or Less
|
|
|
Three Years
|
|
|
Five Years
|
|
|
Years
|
|
|
|
(In thousands)
|
|
|
Federal Home Loan Bank advances(1)
|
|
$
|
261,423
|
|
|
$
|
73,320
|
|
|
$
|
100,400
|
|
|
$
|
65,912
|
|
|
$
|
21,791
|
|
Interest expense payable on Federal Home Loan Bank Advances
|
|
|
25,531
|
|
|
|
8,814
|
|
|
|
11,408
|
|
|
|
3,671
|
|
|
|
1,638
|
|
Operating leases(2)
|
|
|
13,064
|
|
|
|
791
|
|
|
|
1,499
|
|
|
|
1,338
|
|
|
|
9,436
|
|
Other liabilities(3)
|
|
|
1,561
|
|
|
|
121
|
|
|
|
268
|
|
|
|
308
|
|
|
|
864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Contractual Obligations
|
|
$
|
301,579
|
|
|
$
|
83,046
|
|
|
$
|
113,575
|
|
|
$
|
71,229
|
|
|
$
|
33,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Secured under a blanket security agreement on qualifying assets,
principally, mortgage loans. |
|
(2) |
|
Represents non-cancelable operating leases for offices and
office equipment. |
|
(3) |
|
Consists of estimated benefit payments over the next ten years
to retirees under unfunded nonqualified pension plans. |
58
Other
Commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
More than
|
|
|
More than
|
|
|
|
|
|
|
|
|
|
|
|
|
One Year
|
|
|
Three Years
|
|
|
|
|
|
|
|
|
|
One Year
|
|
|
Through
|
|
|
Through
|
|
|
Over Five
|
|
|
|
Total
|
|
|
or Less
|
|
|
Three Years
|
|
|
Five Years
|
|
|
Years
|
|
|
|
(Dollars in thousands)
|
|
|
Real estate loan commitments(1)
|
|
$
|
48,620
|
|
|
$
|
31,022
|
|
|
$
|
|
|
|
$
|
12,500
|
|
|
$
|
5,098
|
|
Commercial business loan commitments(1)
|
|
|
20,373
|
|
|
|
4,612
|
|
|
|
5,650
|
|
|
|
955
|
|
|
|
9,156
|
|
Commercial business loan lines of credit
|
|
|
60,587
|
|
|
|
10,815
|
|
|
|
3,744
|
|
|
|
30
|
|
|
|
45,998
|
|
Unused portion of home equity lines of credit(2)
|
|
|
143,904
|
|
|
|
1,214
|
|
|
|
5,230
|
|
|
|
30,805
|
|
|
|
106,655
|
|
Unused portion of construction loans
|
|
|
87,544
|
|
|
|
46,908
|
|
|
|
17,531
|
|
|
|
650
|
|
|
|
22,455
|
|
Unused checking overdraft lines of credit(3)
|
|
|
94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94
|
|
Standby letters of credit
|
|
|
10,368
|
|
|
|
8,904
|
|
|
|
864
|
|
|
|
600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Commitments
|
|
$
|
371,490
|
|
|
$
|
103,475
|
|
|
$
|
33,019
|
|
|
$
|
45,540
|
|
|
$
|
189,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General: 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 and generally have fixed expiration
dates or other termination clauses.
|
|
|
(1) |
|
Commitments for loans are extended to customers for up to
180 days after which they expire. |
|
(2) |
|
Unused portions of home equity lines of credit are available to
the borrower for up to 10 years. |
|
(3) |
|
Unused portion of checking overdraft lines of credit are
available to customers in good standing. |
Off-Balance
Sheet Arrangements
The Company does not have any off-balance sheet arrangements,
other than noted above, that have or are reasonably likely to
have a current or future effect on our financial condition,
changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources
that is material to investors.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
Management
of Market and Interest Rate Risk
General: The majority of our assets and
liabilities are monetary in nature. Consequently, our most
significant form of market risk is interest rate risk. Our
assets, consisting primarily of mortgage loans, in general have
longer contractual maturities than our liabilities, consisting
primarily of deposits. As a result, a principal part of our
business strategy is to manage interest rate risk and reduce the
exposure of our net interest income to changes in market
interest rates. Accordingly, our Board of Directors has
established an Asset/Liability 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 Asset/Liability 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 1-4
family fixed rate mortgage loans in the secondary market,
(iii) reducing and shortening the expected average life of
the investment portfolio, and (iv) periodically lengthening
the term structure of our borrowings from the
59
Federal Home Loan Bank of Boston. These measures should serve to
reduce the volatility of our future net interest income in
different interest rate environments.
Quantitative
Analysis:
Income Simulation: Simulation analysis is used
to estimate our interest rate risk exposure at a particular
point in time. It is a dynamic method in that it incorporates
our forecasted balance sheet growth assumptions under the
different interest rate scenarios tested. 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 Asset/Liability Committee
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 December 31, 2010 on the basis of
contractual maturities, anticipated repayments and scheduled
rate adjustments. Prepayment rate assumptions can have a
significant impact on interest income simulation results.
Because of the large percentage of loans and mortgage-backed
securities 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.
|
|
|
|
|
|
|
|
|
|
|
Percentage Increase (Decrease)
|
|
|
|
|
in Estimated
|
|
|
|
|
Net Interest Income Over
|
|
|
|
|
12 Months
|
|
|
|
400 basis point increase in rates
|
|
|
8.21
|
%
|
|
|
|
|
50 basis point decrease in rates
|
|
|
(3.33
|
)
|
|
|
|
|
Rockville Banks Asset/Liability policy currently limits
projected changes in net interest income to a maximum variance
of (5%) for every 100 basis point interest rate change
measured over a twelve-month and a twenty-four month period when
compared to the flat rate scenario. In addition, our policy
limits change in return on assets (ROA) by a maximum
of (15) basis points for every 100 basis point
interest rate change when compared to the flat rate scenario, or
the change will be limited to 20% of the flat rate scenario ROA
(for every 100 basis point interest rate change), whichever
is less. 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, coupled with little opportunity to decrease deposit rates
further due to their current low nominal level, income is
projected to decrease if interest rates fall. 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 Market intervention. At
December 31, 2010, income at risk (i.e., the change in net
interest income) increased 8.21% and decreased 3.33% based on a
400 basis point average increase or a 50 basis point
average decrease, respectively. At December 31, 2010,
return on assets is modeled to increase by 14 basis points
and decrease by 5 basis points based on a 400 basis
point increase or a 50 basis point decrease, respectively.
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.
60
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
ROCKVILLE
FINANCIAL, INC.
CONSOLIDATED
FINANCIAL STATEMENTS
TABLE OF
CONTENTS
|
|
|
|
|
|
|
Page
|
|
|
|
|
62
|
|
|
|
|
|
|
Wolf & Company, P.C.
|
|
|
63
|
|
|
|
|
65
|
|
CONSOLIDATED FINANCIAL STATEMENTS:
|
|
|
|
|
|
|
|
66
|
|
|
|
|
67
|
|
|
|
|
68
|
|
|
|
|
69
|
|
|
|
|
71
|
|
61
REPORT OF
MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING
The management of Rockville Financial, Inc. (the
Company) is responsible for establishing and
maintaining adequate internal control over financial reporting.
The Companys internal control over financial reporting is
a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
accounting principles generally accepted in the United States of
America. The Companys internal control over financial
reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the Company;
(ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in accordance with accounting principles generally
accepted in the United States of America, and that receipts and
expenditures of the Company are being made only in accordance
with authorizations of management and Directors of the Company;
and (iii) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or
disposition of the Companys assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Companys
internal control over financial reporting as of
December 31, 2010, based on the framework set forth by the
Committee of Sponsoring Organizations of the Treadway Commission
in Internal Control Integrated Framework. Based on
that assessment, management concluded that, as of
December 31, 2010, the Companys internal control over
financial reporting is effective based on the criteria
established in Internal Control Integrated Framework.
The effectiveness of the Companys internal control over
financial reporting as of December 31, 2010, has been
audited by Wolf & Company, P.C., an independent
registered public accounting firm.
|
|
|
/s/ William J. McGurk
|
|
/s/ John T. Lund
|
|
|
|
William J. McGurk
|
|
John T. Lund
|
President, Chief Executive Officer
|
|
Senior Vice President, Chief Financial
|
and Director
|
|
Officer and Treasurer
|
Date: March 10, 2011
62
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Rockville Financial, Inc.
We have audited Rockville Financial, Inc.s internal
control over financial reporting as of December 31, 2010,
based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Rockville Financial
Inc.s management is responsible for maintaining effective
internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial
reporting. Our responsibility is to express an opinion on the
Companys internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our
opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
accounting principles generally accepted in the United States of
America. Also, because managements assessment and our
audit were conducted to meet the reporting requirements of
Section 112 of the Federal Deposit Insurance Corporation
Improvement Act (FDICIA), our audit of Rockville Financial,
Inc.s internal control over financial reporting included
controls over the preparation of financial statements in
accordance with the instructions to the Consolidated Financial
Statements for Bank Holding Companies (Form FR Y-9C). A
companys internal control over financial reporting
includes those policies and procedures that (a) pertain to
the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions
of the assets of the company; (b) provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance
with authorizations of management and directors of the company;
and (c) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or
disposition of the companys assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Rockville Financial, Inc. maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2010, based on criteria
established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
December 31, 2010 consolidated financial statements of
Rockville Financial, Inc. and our report dated March 10,
2011 expressed an unqualified opinion.
/s/ Wolf & Company, P.C.
Boston, Massachusetts
March 10, 2011
63
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Rockville Financial, Inc.
We have audited the accompanying consolidated statement of
condition of Rockville Financial, Inc. and subsidiaries (the
Company) as of December 31, 2010 and 2009, and
the related consolidated statements of operations, changes in
stockholders equity and cash flows for the years then
ended. These consolidated financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Rockville Financial, Inc. and subsidiaries as of
December 31, 2010 and 2009, and the results of their
operations and their cash flows for the years then ended in
conformity with accounting principles generally accepted in the
United States of America.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Rockville Financial, Inc. and subsidiaries internal
control over financial reporting as of December 31, 2010,
based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) and our report
dated March 10, 2011 expressed an unqualified opinion on
the effectiveness of Rockville Financial Inc.s internal
control over financial reporting.
/s/ Wolf & Company, P.C.
Boston, Massachusetts
March 10, 2011
64
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Rockville Financial, Inc.
Rockville, Connecticut
We have audited the accompanying consolidated statements of
income, changes in stockholders equity and cash flows of
Rockville Financial, Inc. and its subsidiaries (collectively,
the Company) for the year ended December 31,
2008. These financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the results of the operations
and cash flows of the Company and its subsidiaries for the year
ended December 31, 2008, in conformity with accounting
principles generally accepted in the United States of America.
/s/ DELOITTE & TOUCHE LLP
Hartford, Connecticut
March 10, 2009
65
Rockville
Financial, Inc. and Subsidiaries
December 31,
2010 and 2009
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands, except share data)
|
|
|
ASSETS:
|
CASH AND CASH EQUIVALENTS:
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
16,692
|
|
|
$
|
18,507
|
|
Short-term investments
|
|
|
44,016
|
|
|
|
800
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
|
60,708
|
|
|
|
19,307
|
|
AVAILABLE FOR SALE SECURITIES at fair value
|
|
|
125,447
|
|
|
|
102,751
|
|
HELD TO MATURITY SECURITIES at amortized cost
|
|
|
13,679
|
|
|
|
19,074
|
|
LOANS HELD FOR SALE
|
|
|
380
|
|
|
|
|
|
LOANS RECEIVABLE (net of allowance for loan losses of $14,312 in
2010 and $12,539 in 2009)
|
|
|
1,410,498
|
|
|
|
1,361,019
|
|
FEDERAL HOME LOAN BANK STOCK, at cost
|
|
|
17,007
|
|
|
|
17,007
|
|
ACCRUED INTEREST RECEIVABLE
|
|
|
4,176
|
|
|
|
4,287
|
|
DEFERRED TAX
ASSET-Net
|
|
|
11,327
|
|
|
|
10,608
|
|
PREMISES AND
EQUIPMENT-Net
|
|
|
14,912
|
|
|
|
15,863
|
|
GOODWILL
|
|
|
1,149
|
|
|
|
1,070
|
|
CASH SURRENDER VALUE OF BANK-OWNED LIFE INSURANCE
|
|
|
10,459
|
|
|
|
10,076
|
|
OTHER REAL ESTATE OWNED
|
|
|
990
|
|
|
|
3,061
|
|
PREPAID FDIC ASSESSMENTS
|
|
|
3,875
|
|
|
|
5,884
|
|
OTHER ASSETS
|
|
|
3,466
|
|
|
|
1,127
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,678,073
|
|
|
$
|
1,571,134
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY:
|
|
|
LIABILITIES:
|
|
|
|
|
|
|
|
|
DEPOSITS:
|
|
|
|
|
|
|
|
|
Non-interest-bearing
|
|
$
|
168,736
|
|
|
$
|
150,484
|
|
Interest-bearing
|
|
|
1,050,524
|
|
|
|
978,624
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
1,219,260
|
|
|
|
1,129,108
|
|
MORTGAGORS AND INVESTORS ESCROW ACCOUNTS
|
|
|
6,131
|
|
|
|
6,385
|
|
ADVANCES FROM THE FEDERAL HOME LOAN BANK
|
|
|
261,423
|
|
|
|
263,802
|
|
ACCRUED EXPENSES AND OTHER LIABILITIES
|
|
|
24,831
|
|
|
|
14,411
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
1,511,645
|
|
|
|
1,413,706
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES (Note 16)
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY:
|
|
|
|
|
|
|
|
|
Preferred stock (no par value; 1,000,000 shares authorized;
no shares issued and outstanding at December 31, 2010 and
2009)
|
|
|
|
|
|
|
|
|
Common stock (no par value; 29,000,000 shares authorized;
19,551,057 and 19,554,774 shares issued and 18,863,375 and
18,855,948 outstanding at December 31, 2010 and 2009,
respectively)
|
|
|
85,249
|
|
|
|
85,249
|
|
Additional paid in capital
|
|
|
4,789
|
|
|
|
4,082
|
|
Unearned compensation ESOP
|
|
|
(3,478
|
)
|
|
|
(4,178
|
)
|
Treasury stock, at cost (687,682 and 698,826 shares at
December 31, 2010 and 2009, respectively)
|
|
|
(9,495
|
)
|
|
|
(9,663
|
)
|
Retained earnings
|
|
|
90,645
|
|
|
|
82,971
|
|
Accumulated other comprehensive loss, net of tax
|
|
|
(1,282
|
)
|
|
|
(1,033
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL STOCKHOLDERS EQUITY
|
|
|
166,428
|
|
|
|
157,428
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,678,073
|
|
|
$
|
1,571,134
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
66
Rockville
Financial, Inc. and Subsidiaries
Years
Ended December 31, 2010, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except share data)
|
|
|
INTEREST AND DIVIDEND INCOME:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
70,677
|
|
|
$
|
69,517
|
|
|
$
|
68,458
|
|
Securities-interest
|
|
|
4,558
|
|
|
|
6,116
|
|
|
|
7,406
|
|
Securities-dividends
|
|
|
454
|
|
|
|
428
|
|
|
|
1,647
|
|
Interest-bearing deposits
|
|
|
10
|
|
|
|
1
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest and dividend income
|
|
|
75,699
|
|
|
|
76,062
|
|
|
|
77,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST EXPENSE:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
11,617
|
|
|
|
19,371
|
|
|
|
25,069
|
|
Borrowed funds
|
|
|
10,544
|
|
|
|
10,404
|
|
|
|
9,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
22,161
|
|
|
|
29,775
|
|
|
|
34,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
53,538
|
|
|
|
46,287
|
|
|
|
42,599
|
|
PROVISION FOR LOAN LOSSES
|
|
|
4,109
|
|
|
|
1,961
|
|
|
|
2,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
49,429
|
|
|
|
44,326
|
|
|
|
40,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-INTEREST INCOME (LOSS):
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other-than-temporary
impairment losses on equity securities
|
|
|
|
|
|
|
(362
|
)
|
|
|
(13,315
|
)
|
Total
other-than-temporary
impairment losses on debt securities
|
|
|
|
|
|
|
|
|
|
|
(1,566
|
)
|
Portion of impairment losses recognized in other comprehensive
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net impairment losses recognized in earnings
|
|
|
|
|
|
|
(362
|
)
|
|
|
(14,881
|
)
|
Service charges and fees
|
|
|
7,377
|
|
|
|
5,221
|
|
|
|
5,131
|
|
Net gain from sale of securities
|
|
|
190
|
|
|
|
936
|
|
|
|
381
|
|
Net gain from sale of loans
|
|
|
1,746
|
|
|
|
782
|
|
|
|
|
|
Other income
|
|
|
91
|
|
|
|
395
|
|
|
|
382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income (loss)
|
|
|
9,404
|
|
|
|
6,972
|
|
|
|
(8,987
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-INTEREST EXPENSE:
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
20,032
|
|
|
|
18,571
|
|
|
|
17,150
|
|
Service bureau fees
|
|
|
4,048
|
|
|
|
3,872
|
|
|
|
3,808
|
|
Occupancy and equipment
|
|
|
4,292
|
|
|
|
4,380
|
|
|
|
4,103
|
|
Professional fees
|
|
|
1,807
|
|
|
|
1,131
|
|
|
|
1,484
|
|
Marketing and promotions
|
|
|
1,450
|
|
|
|
1,156
|
|
|
|
1,315
|
|
FDIC assessments
|
|
|
1,616
|
|
|
|
2,222
|
|
|
|
654
|
|
Other real estate owned
|
|
|
1,435
|
|
|
|
69
|
|
|
|
|
|
Other
|
|
|
5,170
|
|
|
|
5,230
|
|
|
|
5,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense
|
|
|
39,850
|
|
|
|
36,631
|
|
|
|
33,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES
|
|
|
18,983
|
|
|
|
14,667
|
|
|
|
(2,543
|
)
|
INCOME TAX PROVISION (BENEFIT)
|
|
|
6,732
|
|
|
|
4,935
|
|
|
|
(956
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
$
|
12,251
|
|
|
$
|
9,732
|
|
|
$
|
(1,587
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.66
|
|
|
$
|
0.53
|
|
|
$
|
(0.09
|
)
|
Diluted
|
|
$
|
0.66
|
|
|
$
|
0.53
|
|
|
$
|
(0.09
|
)
|
Weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
18,537,498
|
|
|
$
|
18,469,092
|
|
|
$
|
18,428,158
|
|
Diluted
|
|
$
|
18,551,398
|
|
|
$
|
18,473,665
|
|
|
$
|
18,428,158
|
|
See accompanying notes to consolidated financial statements.
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Unearned
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Compensation
|
|
|
Retained
|
|
|
Treasury Stock
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
ESOP
|
|
|
Earnings
|
|
|
Shares
|
|
|
Amount
|
|
|
Income (Loss)
|
|
|
Equity
|
|
|
|
(In thousands)
|
|
|
Balance at December 31, 2007
|
|
|
19,568,284
|
|
|
$
|
85,249
|
|
|
$
|
3,009
|
|
|
$
|
(5,734
|
)
|
|
$
|
81,383
|
|
|
|
496,730
|
|
|
$
|
(7,293
|
)
|
|
$
|
(241
|
)
|
|
$
|
156,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,587
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,587
|
)
|
Change in net unrealized gain on securities available for sale,
net of reclassification adjustments and tax effects
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
420
|
|
|
|
420
|
|
Change in accumulated other comprehensive loss related to
employee benefit plans, net of reclassification adjustments and
tax effects
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,272
|
)
|
|
|
(4,272
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,439
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock repurchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
291,082
|
|
|
|
(3,787
|
)
|
|
|
|
|
|
|
(3,787
|
)
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
1,956
|
|
|
|
699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,655
|
|
Treasury stock issued
|
|
|
|
|
|
|
|
|
|
|
(1,371
|
)
|
|
|
|
|
|
|
|
|
|
|
(92,559
|
)
|
|
|
1,371
|
|
|
|
|
|
|
|
|
|
Cancellation of shares for tax withholding
|
|
|
|
|
|
|
|
|
|
|
(214
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(214
|
)
|
Dividends paid, $0.20 per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,691
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,691
|
)
|
SFAS 158 pension remeasurement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(120
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(120
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
19,568,284
|
|
|
|
85,249
|
|
|
|
3,380
|
|
|
|
(5,035
|
)
|
|
|
75,985
|
|
|
|
695,253
|
|
|
|
(9,709
|
)
|
|
|
(4,093
|
)
|
|
|
145,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of adjustment to retained earnings relating to
impairment of securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,034
|
|
|
|
|
|
|
|
|
|
|
|
(1,034
|
)
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,732
|
|
Change in net unrealized gain on securities available for sale,
net of reclassification adjustments and tax effects
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,441
|
|
|
|
1,441
|
|
Change in accumulated other comprehensive loss related to
employee benefit plans, net of reclassification adjustments and
tax effects
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,653
|
|
|
|
2,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock repurchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
(198
|
)
|
|
|
|
|
|
|
(198
|
)
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
827
|
|
ESOP shares released or committed to be release
|
|
|
|
|
|
|
|
|
|
|
71
|
|
|
|
857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
928
|
|
Forfeited unvested restricted stock
|
|
|
(9,200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock issued
|
|
|
|
|
|
|
|
|
|
|
(152
|
)
|
|
|
|
|
|
|
(92
|
)
|
|
|
(16,427
|
)
|
|
|
244
|
|
|
|
|
|
|
|
|
|
Cancellation of shares for tax withholding
|
|
|
(4,310
|
)
|
|
|
|
|
|
|
(44
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(44
|
)
|
Dividends paid, $0.20 per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,688
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,688
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
19,554,774
|
|
|
|
85,249
|
|
|
|
4,082
|
|
|
|
(4,178
|
)
|
|
|
82,971
|
|
|
|
698,826
|
|
|
|
(9,663
|
)
|
|
|
(1,033
|
)
|
|
|
157,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,251
|
|
Change in net unrealized gain on securities available for sale,
net of reclassification adjustments and tax effects
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
17
|
|
Change in accumulated other comprehensive loss related to
employee benefit plans, net of reclassification adjustments and
tax effects
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(266
|
)
|
|
|
(266
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
775
|
|
ESOP shares released or committed to be release
|
|
|
|
|
|
|
|
|
|
|
103
|
|
|
|
700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
803
|
|
Treasury stock issued
|
|
|
|
|
|
|
|
|
|
|
(125
|
)
|
|
|
|
|
|
|
(43
|
)
|
|
|
(11,144
|
)
|
|
|
168
|
|
|
|
|
|
|
|
|
|
Cancellation of shares for tax withholding
|
|
|
(3,717
|
)
|
|
|
|
|
|
|
(46
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(46
|
)
|
Dividends paid, $0.245 per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,534
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,534
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
|
19,551,057
|
|
|
$
|
85,249
|
|
|
$
|
4,789
|
|
|
$
|
(3,478
|
)
|
|
$
|
90,645
|
|
|
|
687,682
|
|
|
$
|
(9,495
|
)
|
|
$
|
(1,282
|
)
|
|
$
|
166,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
68
Rockville
Financial, Inc. and Subsidiaries
Years
Ended December 31, 2010, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
12,251
|
|
|
$
|
9,732
|
|
|
$
|
(1,587
|
)
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization and accretion of premiums and discounts on
investments, net
|
|
|
(171
|
)
|
|
|
(160
|
)
|
|
|
(59
|
)
|
Share-based compensation expense
|
|
|
775
|
|
|
|
827
|
|
|
|
1,743
|
|
Amortization of ESOP expense
|
|
|
803
|
|
|
|
928
|
|
|
|
912
|
|
Provision for loan losses
|
|
|
4,109
|
|
|
|
1,961
|
|
|
|
2,393
|
|
Net gain from sale of securities
|
|
|
(190
|
)
|
|
|
(936
|
)
|
|
|
(381
|
)
|
Other-than-temporary
impairment of securities
|
|
|
|
|
|
|
362
|
|
|
|
14,881
|
|
Loans originated for sale
|
|
|
(71,443
|
)
|
|
|
(43,958
|
)
|
|
|
|
|
Proceeds from sales of loans
|
|
|
71,063
|
|
|
|
43,958
|
|
|
|
|
|
Losses (gains) on sale of OREO
|
|
|
441
|
|
|
|
(16
|
)
|
|
|
|
|
Write-downs of OREO
|
|
|
866
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,435
|
|
|
|
1,608
|
|
|
|
1,502
|
|
Loss on disposal of equipment
|
|
|
1
|
|
|
|
34
|
|
|
|
3
|
|
Deferred income tax benefit
|
|
|
(674
|
)
|
|
|
(1,242
|
)
|
|
|
(5,528
|
)
|
Increase in cash surrender value of bank-owned life insurance
|
|
|
(383
|
)
|
|
|
(371
|
)
|
|
|
(383
|
)
|
Net change in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred loan fees and premiums
|
|
|
(109
|
)
|
|
|
784
|
|
|
|
113
|
|
Accrued interest receivable
|
|
|
111
|
|
|
|
349
|
|
|
|
(480
|
)
|
Prepaid FDIC assessment
|
|
|
2,009
|
|
|
|
(5,884
|
)
|
|
|
|
|
Other assets
|
|
|
(2,339
|
)
|
|
|
(192
|
)
|
|
|
2,484
|
|
Accrued expenses and other liabilities
|
|
|
9,905
|
|
|
|
2,602
|
|
|
|
167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
28,460
|
|
|
|
10,386
|
|
|
|
15,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of available for sale securities
|
|
|
399
|
|
|
|
21,171
|
|
|
|
5,870
|
|
Proceeds from calls and maturities of available for sale
securities
|
|
|
29,723
|
|
|
|
2,500
|
|
|
|
14,850
|
|
Principal payments on available for sale mortgage-backed
securities
|
|
|
21,166
|
|
|
|
25,525
|
|
|
|
17,596
|
|
Principal payments on held to maturity mortgage-backed securities
|
|
|
5,470
|
|
|
|
5,135
|
|
|
|
1,842
|
|
Purchases of available for sale securities
|
|
|
(73,580
|
)
|
|
|
(8,091
|
)
|
|
|
(57,030
|
)
|
Purchases of held to maturity securities
|
|
|
|
|
|
|
|
|
|
|
(25,948
|
)
|
Purchase of Federal Home Loan Bank stock
|
|
|
|
|
|
|
|
|
|
|
(5,839
|
)
|
Proceeds from sales of portfolio loans
|
|
|
|
|
|
|
161
|
|
|
|
8,175
|
|
Proceeds from sale of OREO
|
|
|
5,120
|
|
|
|
1,859
|
|
|
|
|
|
Purchase of loans
|
|
|
|
|
|
|
(2,529
|
)
|
|
|
(26,212
|
)
|
Loan originations, net of principal payments
|
|
|
(57,835
|
)
|
|
|
(74,509
|
)
|
|
|
(159,933
|
)
|
Purchases of premises and equipment
|
|
|
(461
|
)
|
|
|
(1,100
|
)
|
|
|
(3,558
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(69,998
|
)
|
|
|
(29,878
|
)
|
|
|
(230,187
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
69
Rockville
Financial, Inc. and Subsidiaries
Consolidated
Statements of Cash Flows (Continued)
Years
Ended December 31, 2010, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in non-interest-bearing deposits
|
|
|
18,252
|
|
|
|
34,371
|
|
|
|
16,735
|
|
Net increase in interest-bearing deposits
|
|
|
71,900
|
|
|
|
52,229
|
|
|
|
74,735
|
|
Net (decrease) increase in mortgagors and investors
escrow accounts
|
|
|
(254
|
)
|
|
|
308
|
|
|
|
509
|
|
Net (decrease) increase in short-term Federal Home Loan Bank
advances
|
|
|
(15,000
|
)
|
|
|
(51,000
|
)
|
|
|
38,000
|
|
Poceeds from long-term Federal Home Loan Bank advances
|
|
|
37,800
|
|
|
|
8,112
|
|
|
|
113,320
|
|
Repayments of long-term Federal Home Loan Bank advances
|
|
|
(25,179
|
)
|
|
|
(16,192
|
)
|
|
|
(30,179
|
)
|
Common stock repurchased
|
|
|
|
|
|
|
(198
|
)
|
|
|
(4,119
|
)
|
Cancellation of shares for tax withholding
|
|
|
(46
|
)
|
|
|
(44
|
)
|
|
|
|
|
Cash dividends paid on common stock
|
|
|
(4,534
|
)
|
|
|
(3,688
|
)
|
|
|
(3,691
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
82,939
|
|
|
|
23,898
|
|
|
|
205,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
41,401
|
|
|
|
4,406
|
|
|
|
(9,097
|
)
|
CASH AND CASH EQUIVALENTS Beginning of year
|
|
|
19,307
|
|
|
|
14,901
|
|
|
|
23,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS End of year
|
|
$
|
60,708
|
|
|
$
|
19,307
|
|
|
|
14,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
22,235
|
|
|
$
|
29,901
|
|
|
$
|
34,683
|
|
Income taxes, net
|
|
|
9,520
|
|
|
|
4,401
|
|
|
|
1,751
|
|
Transfer of loans to other real estate owned
|
|
|
4,356
|
|
|
|
4,904
|
|
|
|
|
|
Due to broker, investment purchase
|
|
|
10,534
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
70
Rockville
Financial, Inc. and Subsidiaries
|
|
Note 1.
|
MUTUAL
HOLDING COMPANY REORGANIZATION AND MINORITY STOCK
ISSUANCE
|
On March 3, 2011, Rockville Financial, Inc. completed its
stock offering in connection with the second step conversion of
Rockville Financial MHC, Inc. As part of the conversion, New
Rockville Financial, Inc. succeeded Rockville Financial, Inc as
the stock holding company of Rockville Bank, and Rockville
Financial MHC, Inc. was dissolved. In the stock offering, a
total of 10,689,250 shares representing Rockville Financial
MHC, Incs ownership interest in Rockville Financial were
sold by New Rockville Financial, Inc. in a subscription
offering. In addition, each outstanding share of Rockville
Financial, Inc. as of March 3, 2011 was exchanged for
1.5167 shares of New Rockville Financial, Inc. common
stock. New Rockville Financial, Inc. changed its name to
Rockville Financial, Inc. effective March 3, 2011.
Rockville Financial, Inc., (the Company), a
state-chartered mid-tier stock holding company was formed on
December 17, 2004 to reorganize Charter Oak Community Bank
Corp. from a state-chartered mutual holding company to a
state-chartered two-tier mutual and stock holding company. The
Reorganization and Minority Stock Issuance Plan (the
Plan) adopted by the Companys, Charter Oak
Community Bank Corp.s and Rockville Banks Board of
Directors was completed on May 20, 2005. Charter Oak
Community Bank Corp.s name was changed to Rockville
Financial MHC, Inc. and 100% of the stock of its wholly-owned
subsidiary Rockville Bank (the Bank) was exchanged
for 10,689,250 shares, or 55% of the stock issued by the
Company. Rockville Bank provides a full range of banking
services to consumer and commercial customers through its main
office in Rockville and twenty one branches located in Hartford,
New London and Tolland Counties in Connecticut. The Banks
deposits are insured under the Deposit Insurance Fund, which is
administered by the Federal Deposit Insurance Corporation.
As of December 31, 2010, the Company had not engaged in any
business activities other than owning the common stock of
Rockville Bank. Rockville Financial MHC, Inc. does not conduct
any business activity other than owning a majority of the common
stock of Rockville Financial, Inc. In connection with the stock
offering, the Company established Rockville Bank Foundation,
Inc., a non-profit charitable organization dedicated to helping
the communities that the Bank serves. The Foundation was funded
with a contribution of 388,700 shares of the Companys
common stock, representing 2% of the outstanding common shares.
The stock donation resulted in a $3.9 million contribution
expense being recorded and an additional $63,000 deferred tax
benefit was recognized as the basis of the contribution for tax
purposes equal to the stocks trading price on the first
day of trading which was higher than the initial issuance price
used to record the contribution expense.
|
|
Note 2.
|
BASIS OF
PRESENTATION, PRINCIPLES OF CONSOLIDATION AND SIGNIFICANT
ACCOUNTING POLICIES
|
The consolidated financial statements and the accompanying notes
presented in this report include the accounts of the Company and
its wholly-owned subsidiary Rockville Bank, and the Banks
wholly-owned subsidiaries, SBR Mortgage Company, SBR Investment
Corp., Rockville Commercial Foreclosed Properties, Inc.,
Rockville Residential Foreclosed Properties, Inc., Rockville
Financial Services, Inc. and Rockville Bank Mortgage, Inc. The
consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the
United States of America (GAAP).
Certain reclassifications have been made in prior periods
consolidated financial statements to conform to the 2010
presentation.
A description of the Companys significant accounting
policies is presented below:
Use of Estimates: The preparation of financial
statements in conformity with accounting principles generally
accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent
71
Rockville
Financial, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
assets and liabilities at the dates of the financial statements
and the reported amounts of income and expenses during the
reporting periods. Operating results in the future could vary
from the amounts derived from managements 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, determination of
pension assumptions, share-based compensation, the valuation of
deferred tax assets, and the evaluation of securities for
other-than-temporary
impairment.
Acquisition: On September 21, 2009, the
Company entered into an agreement to purchase the assets of
Family Choice Mortgage Company, a privately held Massachusetts
mortgage origination corporation operating in Massachusetts and
Connecticut. The transaction closed on January 11, 2010 and
now operates under the name of Rockville Bank Mortgage, Inc.,
d/b/a Family Choice Mortgage, a subsidiary of Rockville Bank.
This addition helps to expand the Companys mortgage
origination business, particularly in the area of Federal
Housing Administration (FHA) loans, Veterans Administration (VA)
loans, loans to first time home buyers, and Reverse Mortgages.
Policies and procedures have been implemented that govern
expense and revenue sharing. The subsidiary is included within
the risk management system of the Company and has not had a
significant effect on the operations of the Company.
Cash and Cash Equivalents: For purposes of
reporting cash flows, the Company considers all highly liquid
debt instruments with an original maturity of three months or
less to be cash equivalents. The Company maintains amounts due
from banks and Federal funds sold that, at times, may exceed
federally insured limits. The Company has not experienced any
losses from such concentrations. The Bank is required by the
Federal Reserve System to maintain non-interest-bearing cash
reserves equal to a percentage of certain deposits.
Securities: Management determines the
appropriate classification of securities at the date individual
investment securities are acquired, and the appropriateness of
such classification is reassessed at each statement of condition
date.
Debt securities that management has the positive intent and
ability to hold to maturity are classified as held to
maturity and recorded at amortized cost.
Trading securities, if any, are carried at fair
value, with unrealized gains and losses recognized in earnings.
Securities not classified as held to maturity or trading,
including equity securities with readily determinable fair
values, are classified as available for sale and
recorded at fair value, with unrealized gains and losses
excluded from earnings and reported in other comprehensive
income. As of December 31, 2010 and 2009, the Company had
no trading securities.
Purchase premiums and discounts are recognized in interest
income using the interest method over the expected terms of the
securities. Each reporting period, the Company evaluates all
securities classified as available for sale or held to maturity,
with a decline in fair value below the amortized cost of the
investment to determine whether or not the impairment is deemed
to be
other-than-temporary
impairment (OTTI).
Marketable equity securities are evaluated for OTTI based on the
severity and duration of the impairment and, if deemed to be
other-than-temporary,
the declines in fair value are reflected in earnings as realized
losses. For debt securities, OTTI is required to be recognized
(1) if the Company intends to sell the security;
(2) if it is more likely than not that the
Company will be required to sell the security before recovery of
its amortized cost basis; or (3) the present value of
expected cash flows is not sufficient to recover the entire
amortized cost basis. For all impaired debt securities that the
Company intends to sell, or more likely than not will be
required to sell, the full amount of the depreciation is
recognized as OTTI through earnings. Credit-related OTTI for all
other impaired debt securities is recognized through earnings.
Non-credit related OTTI for such debt securities is recognized
in other comprehensive income, net of applicable taxes.
Gains and losses on the sale of securities are recorded on the
trade date and are determined using the specific identification
method.
72
Rockville
Financial, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
Federal Home Loan Bank Stock: The Bank, as a
member of the Federal Home Loan Bank system, is required to
maintain an investment in capital stock of the Federal Home Loan
Bank of Boston (FHLBB). Based on redemption
provisions of the FHLBB, the stock has no quoted market value
and is carried at cost. At its discretion, the FHLBB may declare
dividends on the stock. On January 29, 2009, the FHLBB
notified its members of its focus on preserving capital in
response to the ongoing market volatility. That letter outlined
that actions taken by the FHLBB included an excess stock
repurchase moratorium, increased retained earnings target, and
suspension of its quarterly dividend payment. In February 2011,
the FHLBB announced the reinstatement of dividends. The Bank
reviews for impairment based on the ultimate recoverability of
the cost basis in the FHLBB stock. As of December 31, 2010
and 2009, no impairment has been recognized.
Loans
Held For Sale:
Loans originated and intended for sale in the secondary market
are carried at the lower of cost or estimated fair value in the
aggregate. Net unrealized losses, if any, are recognized through
a valuation allowance by charges to income.
Loans: The Companys loan portfolio
includes residential real estate, commercial real estate,
construction, commercial and consumer segments. Residential real
estate loans include classes for 1 4 family owner
occupied, second mortgages and equity lines of credit. Consumer
loans are further segmented into installment and collateral
loans.
Loans are stated at current unpaid principal balances, net of
the allowance for loan losses, charge-offs, deferred loan
origination costs and fees and loan purchase premiums.
Commitment fees for which the likelihood of exercise is remote
are recognized over the loan commitment period on a
straight-line basis.
A loan is classified as a troubled debt restructure
(TDR) when certain concessions have been made to the
original contractual terms, such as reductions of interest rates
or deferral of interest or principal payments due to the
borrowers financial condition.
A loan is impaired when it is probable the Company will be
unable to collect all contractual principal and interest
payments due in accordance with the terms of the loan agreement.
An impaired loan is measured based on the present value of
expected future cash flows discounted at the loans
effective interest rate or, as a practical expedient, at the
loans observable market price or the fair value of the
collateral if the loan is collateral dependent. Management
considers all non-accrual loans and TDRs to be impaired.
In most cases, loan payments less than 90 days past due,
based on contractual terms, are considered minor collection
delays, and the related loans are generally not considered
impaired. The Company considers consumer installment loans to be
pools of smaller balance, homogenous loans that are collectively
evaluated for impairment, unless such loans are subject to a
troubled debt restructuring agreement.
Interest and Fees on Loans: Interest on loans
is accrued and included in interest income based on contractual
rates applied to principal amounts outstanding. Accrual of
interest is discontinued, and previously accrued income is
reversed, when loan payments are 90 days or more past due
or when, in the judgment of management, collectibility of the
loan or loan interest becomes uncertain.
Subsequent recognition of income occurs only to the extent
payment is received subject to managements assessment of
the collectibility of the remaining interest and principal. A
non-accrual loan is restored to accrual status when it is no
longer 90 days delinquent, collectability of interest and
principal is no longer in doubt and six months of continuous
payments have been received.
73
Rockville
Financial, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
Loan origination fees and direct loan origination costs
(including loan commitment fees) are deferred, and the net
amount is recognized as an adjustment of the related loans
yield utilizing the interest method over the contractual life of
the loan.
Allowance for Loan Losses: The allowance for
loan losses 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.
Managements 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 allowance for loan losses when
management believes that the uncollectibility of principal is
confirmed. Any subsequent recoveries are credited to the
allowance for loan losses when received. In connection with the
determination of the allowance for loan losses, management
obtains independent appraisals for significant properties, when
considered necessary.
General
component:
The general component of the allowance for loan losses is based
on historical loss experience adjusted for qualitative factors
stratified by the following loan segments: residential real
estate, commercial real estate, construction, commercial and
consumer. Management uses a rolling average of historical losses
based on a time frame appropriate to capture relevant loss data
for each loan segment. This historical loss factor is adjusted
for the following qualitative factors: levels and trends in
delinquencies; level and trend of charge-offs and recoveries;
trends in volume and types of loans; effects of changes in risk
selection and underwriting standards changes in risk selection
and underwriting standards; experience and depth of lending
weighted average risk rating; and national and local economic
trends and conditions. There were no changes in the
Companys policies or methodology pertaining to the general
component of the allowance for loan losses during 2010.
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 first and second mortgages The
Bank establishes maximum
loan-to-value
and
debt-to-income
ratios and minimum credit scores as an integral component of the
underwriting criteria. Loans in these segments are
collateralized by owner-occupied residential real estate and
repayment is dependent on the income and credit quality of the
individual borrower. Within the qualitative allowance factors,
national and local economic trends including unemployment rates
and potential declines in property value, are key elements
reviewed as a component of establishing the appropriate
allocation. Overall economic conditions, unemployment rates and
housing price trends will influence the underlying credit
quality of these segments.
Commercial real estate Loans in this segment
are primarily income-producing properties throughout Connecticut
and select markets in the Northeast. The underlying cash flows
generated by the properties could be adversely impacted by a
downturn in the economy as evidenced by increased vacancy rates,
which in turn, will have an effect on the credit quality in this
segment. Management obtains rent rolls annually, continually
monitors the cash flows of these loans and performs stress
testing.
Construction loans Loans in this segment
primarily include commercial real estate development and
residential subdivision loans for which payment is derived from
sale of the property. Credit risk is affected by cost overruns,
time to sell at an adequate price, and market conditions.
74
Rockville
Financial, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
Commercial 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.
Consumer loans Loans in this segment are
generally unsecured and repayment is dependent on the credit
quality of the individual borrower.
Allocated
component:
The allocated component relates to loans that are classified as
impaired. Impairment is measured on a loan by loan basis for
commercial, commercial real estate and construction loans by
either the present value of expected future cash flows
discounted at the loans effective interest rate or the
fair value of the collateral if the loan is collateral
dependent. An allowance is established when the discounted cash
flows (or collateral value) of the impaired loan is lower than
the carrying value of that loan. Residential and consumer loans
are evaluated for impairment if payments are 90 days or
more delinquent. Updated property evaluations are obtained at
time of impairment and serve as the basis for the loss
allocation if foreclosure is probable or the loan is collateral
dependent.
A loan is considered impaired when, based on current information
and events, it is probable that the Company will be unable to
collect the scheduled payments of principal or interest when due
according to the contractual terms of the loan agreement.
Factors considered by management in determining impairment
include payment status, collateral value, and the probability of
collecting scheduled principal and interest payments when due.
Loans that experience insignificant payment delays and payment
shortfalls generally are not classified as impaired. Management
determines the significance of payment delays and payment
shortfalls on a
case-by-case
basis, taking into consideration all of the circumstances
surrounding the loan and the borrower, including the length of
the delay, the reasons for the delay, the borrowers prior
payment record, and the amount of the shortfall in relation to
the principal and interest owed.
The Company periodically may agree to modify the contractual
terms of loans. When a loan is modified and a concession is made
to a borrower experiencing financial difficulty, the
modification is considered a troubled debt restructuring
(TDR). All TDRs are initially classified as impaired.
Unallocated
component:
An unallocated component is maintained to cover uncertainties
that could affect managements 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.
When a loan is determined to be impaired the Company makes a
determination if the repayment of the obligation is collateral
dependent. As a majority of impaired loans are collateralized by
real estate, appraisals on the underlying value of the property
securing the obligation are utilized in determining the specific
impairment amount that is allocated to the loan as a component
of the allowance calculation. If the loan is collateral
dependent, an updated appraisal is obtained within a short
period of time from the date the loan is determined to be
impaired; typically no longer than 30 days for a
residential property and 90 days for a commercial real
estate property. The appraisal and the appraised value are
reviewed for adequacy and then further discounted for estimated
disposition costs and the period of time until resolution, in
order to determine the impairment amount. The Company updates
the appraised value at least annually and on a more frequent
basis if current market factors indicate a potential change in
valuation.
The majority of the Companys loans are collateralized by
real estate located in central and eastern Connecticut in
addition to a portion of the commercial real estate loan
portfolio located in the Northeast
75
Rockville
Financial, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
region of the United States. Accordingly, the collateral value
of a substantial portion of the Companys loan portfolio
and real estate acquired through foreclosure is susceptible to
changes in market conditions in these areas.
The allowance for loan losses has been determined in accordance
with GAAP, under which we are required to maintain an allowance
for probable losses at the balance sheet date. We are
responsible for the timely and periodic determination of the
amount of the allowance required. We believe that our allowance
for loan losses is adequate to cover specifically identifiable
losses, as well as, estimated losses inherent in our portfolio
that are probable, but not specifically identifiable.
While management uses available information to recognize losses
on loans, future additions to the allowance or charge-offs may
be necessary based on changes in economic conditions,
particularly in Hartford, New London and Tolland Counties in
Connecticut. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review
the Companys allowance for loan losses. Such agencies have
the authority to require the Company to recognize additions to
the allowance or charge-offs based on the agencies
judgments about information available to them at the time of
their examination.
At the time of loan origination, a risk rating based on a nine
point grading system is assigned to each loan based on the loan
officers assessment of risk. More complex loans, such as
commercial business loans and commercial real estate, require
that our internal independent credit area further evaluate the
risk rating of the individual loan, with the credit area having
final determination of the appropriate risk rating. These more
complex loans and relationships in excess of $250,000 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 borrowers and economic conditions
warrant. On an annual basis updated financial information is
reviewed on all commercial loans with a relationship exposure of
$250,000 and greater and the risk rating is evaluated based on
current operating performance. Commercial loans under $250,000
and residential mortgage loans are re-evaluated if there is a
delinquency greater than 30 days.
The credit quality of the Companys commercial loan
portfolio is further reviewed by a third party risk assessment
firm which performs semi-annual reviews encompassing 65% to 70%
of the commercial loan portfolio on an annual basis. Review
findings and any related risk rating changes are reported to
senior management, the Board Lending Committee and the Board of
Directors.
Servicing
The Company services mortgage loans for others. Mortgage
servicing assets are recognized as separate assets when rights
are acquired through purchase or through sale of financial
assets. For sales of mortgage loans, a portion of the cost of
originating the loan is allocated to the servicing right based
on fair value. Fair value is determined using prices for similar
assets with similar characteristics, when available, or based
upon discounted cash flows using market-based assumptions. The
Companys servicing asset valuation is performed by an
independent third party using a static valuation model
representing a projection of a single interest rate/market
environment into the future and discounting the resulting assume
cash flow back to present value. Discount rates, servicing
costs, float earnings rates and delinquency information as well
as the use of the medium PSA quotations provided by Security
Industry and Financial Market Association (SIFMA) are used to
calculate the value of the Servicing Asset.
Capitalized servicing rights are reported in other assets and
are amortized into loan servicing fee income in proportion to,
and over the period of, the estimated future net servicing
income of the underlying financial assets. Servicing assets are
evaluated for impairment based upon the fair value of the rights
as compared to amortized cost. Impairment is determined by
stratifying rights by predominant risk characteristics, such as
interest rates and terms. Impairment is recognized through a
valuation allowance for an individual stratum, to
76
Rockville
Financial, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
the extent that fair value is less than the capitalized amount
for the stratum. Changes in the valuation allowance are reported
in loan servicing fee income.
Derivative Loan Commitments: Mortgage loan
commitments are referred to as derivative loan commitments if
the loan that will result from exercise of the commitment will
be held for sale upon funding. Loan commitments that are
derivatives are recognized at fair value on the consolidated
balance sheet in other assets and other liabilities with changes
in their fair values recorded in other non-interest income, if
material. Fair value is based on changes in the fair value of
the underlying mortgage loans.
Forward Loan Sale Commitments: To protect
against the price risk inherent in derivative loan commitments,
the Company utilizes both 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. Mandatory delivery contracts are accounted for as
derivative instruments. Mandatory delivery forward loan sale
commitments are recognized at fair value on the consolidated
balance sheet in other assets and other liabilities with changes
in their fair values recorded in other non-interest income, if
material. Subsequent to inception, changes in the fair value of
the loan commitment are recognized based on changes in the fair
value of the underlying mortgage loan due to interest rate
changes, changes in the probability the derivative loan
commitment will be exercised, and the passage of time. In
estimating fair value, the Company assigns a probability to a
loan commitment based on an expectation that it will be
exercised and the loan will be funded.
The Company estimates the fair value of its forward loan sales
commitments using a methodology similar to that used for
derivative loan commitments. Forward loan sale commitments are
recognized at fair value on the consolidated balance sheet in
other assets and other liabilities with changes in fair value
recorded in other non-interest income, if material.
Other Real Estate Owned: Real estate acquired
through, or in lieu of, loan foreclosure are held for sale and
are initially recorded at fair value, less cost to sell, at the
date of foreclosure, establishing a new cost basis. Subsequent
to foreclosure, valuations are periodically performed by
management and the assets are carried at the lower of carrying
amount or fair value less cost to sell. Revenue and expenses
from operations, changes in the valuation allowance and any
direct write-downs are included in other real estate owned
expense. Gains and losses on the sale of other real estate owned
is recorded in other income.
Reserve for Off-Balance Sheet Commitments: The
reserve for off-balance sheet commitments is a component of
other liabilities and represents the estimate for probable
credit losses inherent in unfunded commitments to extend credit.
Unfunded commitments to extend credit include unfunded
commercial and residential lines of credit, unfunded commercial
and residential construction commitments, standby and commercial
letters of credit. The process used to determine the reserve for
off-balance sheet commitments is consistent with the process for
determining the allowance for loan losses.
Bank-Owned Life Insurance: The cash surrender
value of Bank-Owned Life Insurance (BOLI), net of
any deferred acquisition and surrender costs or loans is
recorded as an asset. Changes in the net cash surrender value of
policies, as well as insurance proceeds received, are reflected
in other income on the consolidated statement of operations and
are not subject to income taxes. As of December 31, 2010
and 2009 there were no deferred acquisition costs, surrender
costs or loans. There are no restrictions on the use of any
insurance proceeds the Company receives from BOLI.
Transfers of Financial Assets: Transfers of an
entire financial asset, a group of entire financial assets, or a
participating interest in an entire financial asset are
accounted for as sales when control over the assets has been
surrendered. Control over transferred assets is deemed to be
surrendered when: (1) the assets have been isolated from
the Company, (2) the transferee obtains the right to pledge
or exchange the transferred assets and no condition both
constrains the transferee from taking advantage of that right
and provides more than a trivial benefit for the transferor, and
(3) the Company does not maintain effective control over
the transferred
77
Rockville
Financial, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
assets through either: (a) an agreement that both entitles
and obligates the transferor to repurchase or redeem the assets
before maturity or (b) the ability to unilaterally cause
the holder to return specific assets, other than through a
cleanup call.
Effective January 1, 2010, the Company adopted accounting
guidance pertaining to transfers of financial assets. During the
normal course of business, the Company may transfer a portion of
a financial asset, for example, a participation loan or the
government guaranteed portion of a loan. In order to be eligible
for sales treatment, the transfer of the portion of the loan
must meet the criteria of a participating interest. If it does
not meet the criteria of a participating interest, the transfer
must be accounted for as a secured borrowing. In order to meet
the criteria for a participating interest, all cash flows from
the loan must be divided proportionately, the rights of each
loan holder must have the same priority, the loan holders must
have no recourse to the transferor other than standard
representations and warranties and no loan holder has the right
to pledge or exchange the entire loan.
Premises and Equipment: Premises and equipment
are stated at cost, net of accumulated depreciation and
amortization. Depreciation is charged to operations using the
straight-line method over the estimated useful lives of the
related assets which range from three to 40 years.
Leasehold improvements are amortized over the shorter of the
improvements estimated economic lives or the related lease
terms excluding lease extension periods. Gains and losses on
dispositions are recognized upon realization. Maintenance and
repairs are expensed as incurred and improvements are
capitalized.
Advertising Costs: Advertising costs are
expensed as incurred.
Impairment of Long-Lived Assets: Long-lived
assets that are held and used by the Company are reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. If
impairment is indicated by that review, the asset is written
down to its estimated fair value through a charge to
non-interest expense. No write-downs of long-lived assets were
recorded for any period presented herein.
Goodwill: Goodwill is not amortized and is
evaluated for impairment annually. No impairment was recorded
during years ended December 31, 2010, 2009 and 2008.
Income Taxes: The Company recognizes income
taxes under the asset and liability method. Under this method,
deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the
enactment date. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely
than not that all or some portion of the deferred tax assets
will not be realized. As of December 31, 2010 and 2009,
management believes it is more likely than not that the deferred
tax assets will be realized through future earnings and future
reversals of existing taxable temporary differences.
The Company has not provided for Connecticut state income taxes
since December 31, 1998 because it has created and
maintained a passive investment company
(PIC), as permitted by Connecticut law. The Company
believes it is in compliance with the state PIC requirements and
that no Connecticut state taxes are due from December 31,
1998 through December 31, 2010; however, the Company has
not been audited by the Department of Revenue Services for such
periods. If the state were to determine that the PIC was not in
compliance with statutory requirements, a material amount of
taxes could be due.
Pension and Other Post-Retirement
Benefits: The Company has a noncontributory
defined benefit pension plan that provides benefits for
full-time employees hired before January 1, 2005, meeting
certain
78
Rockville
Financial, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
requirements as to age and length of service. The benefits are
based on years of service and average compensation, as defined.
The Companys funding policy is to contribute an amount
needed to meet the minimum funding standards established by the
Employee Retirement Security Act of 1974 (ERISA).
The compensation cost of an employees pension benefit is
recognized on the projected unit cost method over the
employees approximate service period.
In addition to providing pension benefits, the Company provides
certain health care and life insurance benefits for retired
employees hired prior to March 1, 1993. Participants become
eligible for the benefits if they retire after reaching
age 62 with five or more years of service. Benefits are
paid in fixed amounts depending on length of service at
retirement. The Company accrues for the estimated costs of these
benefits through charges to expense during the years that
employees render service; however, the Company does not fund
this plan.
Treasury Stock: Shares of common stock that
are repurchased are recorded in treasury stock at cost. On the
date of subsequent re-issuance, the treasury stock account is
reduced by the cost of such stock on a
first-in,
first-out basis. Treasury shares are not deemed outstanding for
earnings per share calculations.
Service Charges and Fee Income: Service
charges and fee income which are not deferred are recorded on an
accrual basis when earned.
Fair Values of Financial Instruments: The
following methods and assumptions were used by the Company in
estimating the fair value of its financial instruments:
Cash and Due from Banks, Short-Term Investments, Accrued
Interest Receivable and Mortgagors and Investors
Escrow Accounts - The carrying amount is a reasonable
estimate of fair value.
Securities Fair values, excluding FHLBB
stock, are based on quoted market prices, dealer quotes, if
available, or a third party pricing service and are not adjusted
by management. If a quoted market price is not available, fair
value is estimated using quoted market prices for similar
securities and pricing models that consider standard input
factors such as observable market data, benchmark yields,
interest rate volatilities, broker/dealer quotes, credit spreads
and new issue data. The carrying value of FHLBB stock
approximates fair value based on the redemption provisions of
the FHLBB.
Loans Held for Sale The fair value of loans
held for sale are based on commitments in effect from investors
or prevailing market prices.
Loans Receivable The fair value of loans is
estimated by discounting the future cash flows using current
market interest rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining
maturities as of the measurement date. Fair value for
non-performing loans are estimated using discounted cash flow
analyses or collateral values, where applicable.
Deposits The fair value of demand, NOW,
savings and money market deposits is the amount payable on
demand at the reporting date. The fair value of time deposits is
estimated using a discounted cash flow calculation that applies
market interest rates being offered for deposits of similar
remaining maturities to a schedule of aggregated expected
maturities on such deposits.
Advances from the Federal Home Loan Bank of
Boston The fair value of the advances is
estimated using a discounted cash flow calculation that applies
current FHLBB interest rates for advances of similar maturity to
a schedule of remaining maturities of such advances.
Off-Balance Sheet Instruments Fair values for
off-balance sheet lending commitments are based on fees
currently charged to enter into similar agreements, taking into
account the remaining terms of the agreements and the
counterparties credit standings.
79
Rockville
Financial, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
Earnings per Common Share: Basic earnings per
share excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number
of shares outstanding for the period. If rights to dividends on
unvested options/awards are non-forfeitable, these unvested
options/awards are considered outstanding in the computation of
basic earnings per share. Beginning with the year ended
December 31, 2009, as a result of new accounting guidance,
the Company included unvested restricted stock in the
calculation of basic earnings per share. No adjustment has been
made to 2008 earnings per share as the effect was immaterial.
Diluted earnings per share reflects the potential dilution that
could occur if securities or other contracts to issue common
stock were exercised or converted into common stock or resulted
in the issuance of common stock that then shared in the earnings
of the entity.
Unearned Employee Stock Ownership Plan (ESOP) shares
are not considered outstanding for calculating basic and diluted
earnings per common share. ESOP shares committed to be released
are considered to be outstanding for purposes of the earnings
per share computation. ESOP shares that have not been legally
released, but that relate to employee services rendered during
an accounting period (interim or annual) ending before the
related debt service payment is made, is considered committed to
be released.
ESOP Expenses: Unearned ESOP shares are shown
as a reduction of stockholders equity and presented as
unearned compensation ESOP. During the period the
ESOP shares are committed to be released, the Company recognizes
compensation cost equal to the average fair value of the ESOP
shares. When the shares are released, unearned common shares
held by the ESOP are reduced by the cost of the ESOP shares
released and the differential between the fair value and the
cost is charged to additional paid in capital. The loan
receivable from the ESOP to the Company is not reported as an
asset nor is the debt of the ESOP reported as a liability in the
Companys consolidated financial statements.
Share-Based Compensation: The Company measures
the cost of employee services received in exchange for an award
of equity instruments based on the grant date fair value of the
award. These costs are recognized on a straight-line basis over
the vesting period during which an employee is required to
provide services in exchange for the award, the requisite
service period. The Company uses the Black-Scholes option
pricing model to estimate the fair value of stock options
granted. When determining the estimated fair value of stock
options granted, the Company utilizes various assumptions
regarding the expected volatility of the stock price, estimated
forfeitures using historical data on employee terminations, the
risk-free interest rate for periods within the contractual life
of the stock option, and the expected dividend yield that the
Company expects over the expected life of the options granted.
Reductions in compensation expense associated with forfeited
options are estimated at the date of grant, and this estimated
forfeiture rate is adjusted monthly based on actual forfeiture
experience. The Company measures the fair value of the
restricted stock using the closing market price of the
Companys common stock on the date of grant. The Company
expenses the grant date fair value of the Companys stock
options and restricted stock with a corresponding increase in
equity.
Segment Information: As a community oriented
financial institution, substantially all of the Companys
operations involve the delivery of loan and deposit products to
customers. Management makes operating decisions and assesses
performance based on an ongoing review of these
community-banking operations, which constitutes the
Companys only operating segment for financial reporting
purposes.
|
|
Note 3.
|
RECENT
ACCOUNTING PRONOUNCEMENTS
|
Receivables, Topic 310: In January 2011, the
Financial Accounting Standards Board (FASB) issued
Accounting Standards Update (ASU)
No. 2011-01,
Deferral of the Effective Date of Disclosures about Troubled
Debt Restructurings in ASU
No. 2010-20
(see below). This ASU delays the effective date of the
disclosures about troubled debt restructurings in ASU
2010-20. The
delay is intended to allow the FASB time to complete its
deliberations on what constitutes a troubled debt restructuring
and to issue its guidance on the topic currently anticipated for
interim and annual periods after June 15, 2011. It is not
expected to have a material impact on the Companys
consolidated financial statements.
80
Rockville
Financial, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
Receivables, Topic 310: In July 2010, the FASB
issued ASU
No. 2010-20,
Disclosures about the Credit Quality of Financing Receivables
and the Allowance for Credit Losses. The objective of this
Update is for an entity to provide disclosures that facilitate
financial statement users evaluation of (1) the
nature of credit risk inherent in the entitys portfolio of
financing receivables (2) how that risk is analyzed and
assessed in arriving at the allowance for credit losses and,
(3) the changes and reasons for those changes in the
allowance for credit losses. For public entities, the
disclosures as of the end of a reporting period are effective
for interim and annual reporting periods ending on or after
December 15, 2010 and the disclosures about activity that
occurs during a reporting period are effective for interim and
annual reporting periods beginning on or after December 15,
2010. The Company has incorporated the end of reporting period
disclosures in the December 31, 2010 consolidated financial
statements. The disclosures about activity will be incorporated
into future financial statements and will significantly increase
the Companys loan disclosures.
Fair Value Measurements and Disclosures, Topic
820: In January 2010, FASB issued ASU No.
2010-06
which provides guidance that requires more robust disclosures
about (1) the different classes of assets and liabilities
measured at fair value, (2) the valuation techniques and
inputs used, (3) the activity in Level 3 fair value
measurements, and (4) the transfers between Levels 1,
2, and 3. This guidance was effective for the Company on
January 1, 2010, and did not have a material impact on the
Companys consolidated financial statements.
|
|
Note 4.
|
EARNINGS
PER SHARE
|
The following tables sets forth the calculation of basic and
diluted earnings per share for the years ended December 31,
2010, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Net income (loss) available to common stockholders
|
|
$
|
12,251
|
|
|
$
|
9,732
|
|
|
$
|
(1,587
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average basic shares outstanding
|
|
|
18,537
|
|
|
|
18,469
|
|
|
|
18,428
|
|
Effect of dilutive options
|
|
|
14
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of common shares outstanding used to calculate
diluted earnings per common share
|
|
|
18,551
|
|
|
|
18,474
|
|
|
|
18,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury shares and unallocated common shares held by the ESOP
are not included in the weighted-average number of common shares
outstanding for either basic or diluted earnings per share
calculations. For the years ended December 31, 2010 and
2009, unvested restricted shares were included in the
weighted-average number of common shares outstanding for basic
and diluted earnings per share. For the year ended
December 31, 2008, unvested restricted shares are not
included in the weighted-average number of common shares
outstanding for basic and diluted earnings per share. The number
of shares of restricted stock issued that were included in the
calculations were 128,000 and 129,000 as of December 31,
2010 and 2009, respectively. The Companys common stock
equivalents relate solely to stock options issued and
outstanding and unvested restricted stock awards. For the year
ended December 31, 2010, options to purchase 557,885 of
common stock at exercise prices ranging from $9.24 to $17.77
were not considered in the computation of potential common
shares for the purpose of diluted EPS as the shares were
anti-dilutive based on the Companys average market price
during the year. For the year ended December 31, 2009,
options to purchase 445,875 of common stock at exercise prices
ranging from $9.24 to $17.77 were not considered in the
computation of potential common shares for the purpose of
diluted EPS as the shares were anti-dilutive based on the
Companys average market price during the year. At
December 31, 2008, options to 342,125 shares of common
stock at exercise prices ranging from $11.98 to $17.77 were not
considered in the computation of
81
Rockville
Financial, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
potential common shares for the purpose of diluted EPS, since
the shares were antidilutive due to the Companys net loss
for the year.
|
|
Note 5.
|
FAIR
VALUE MEASUREMENT
|
The Company groups its assets and liabilities generally measured
at fair value in three levels based on the markets in which the
assets and liabilities are traded and the reliability of the
assumptions used to determine fair value. The fair value
hierarchy is as follows:
Level 1: Quoted prices are available in
active markets for identical investments as of the reporting
date. The quoted price is not adjusted because of the size of
the position relative to trading volume.
Level 2: Pricing inputs are observable
for the asset or liability, either directly or indirectly but
are not the same as those used in Level 1. Fair value is
determined through the use of models or other valuation
methodologies.
Level 3: Pricing inputs are unobservable
for the assets and liabilities and include situations where
there is little, if any, market activity and the determination
of fair value requires significant judgment or estimation.
The inputs used to measure fair value may fall into different
levels of the fair value hierarchy. In such instances, the
determination of which category within the fair value hierarchy
is appropriate for any given asset or liability is based on the
lowest level of input that is significant to the fair value of
the asset or liability.
Items Measured
at Fair Value on a Recurring Basis:
The following valuation methodologies are used for assets
recorded at fair value on a recurring basis. There were no
liabilities recorded at fair value on a recurring basis at
December 31, 2010 and 2009.
Available for Sale
Securities: Investment securities available
for sale are recorded at fair value on a recurring basis. Fair
value measurement is based upon quoted prices, if available. If
quoted prices are not available, fair values are measured using
independent pricing models. Level 1 securities are those
traded on active markets for identical securities including
U.S. treasury debt securities, equity securities and mutual
funds. Level 2 securities include U.S. government
agency obligations, U.S. government-sponsored enterprises,
mortgage-backed securities, corporate and other debt securities.
Level 3 securities include thinly traded equity securities.
82
Rockville
Financial, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
Assets Recorded at Fair Value on a Recurring Basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active
|
|
|
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
Total
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
Fair Value
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
(In thousands)
|
|
|
Available for Sale Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S Government and government-sponsored enterprise obligations
|
|
$
|
34,327
|
|
|
$
|
3,017
|
|
|
$
|
31,310
|
|
|
$
|
|
|
Government-sponsored residential mortgage- backed securities
|
|
|
70,390
|
|
|
|
|
|
|
|
70,390
|
|
|
|
|
|
Corporate debt securities
|
|
|
4,008
|
|
|
|
|
|
|
|
4,008
|
|
|
|
|
|
Marketable equity securities
|
|
|
16,722
|
|
|
|
16,649
|
|
|
|
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value
|
|
$
|
125,447
|
|
|
$
|
19,666
|
|
|
$
|
105,708
|
|
|
$
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S Government and government-sponsored enterprise obligations
|
|
$
|
7,052
|
|
|
$
|
2,018
|
|
|
$
|
5,034
|
|
|
$
|
|
|
Government-sponsored residential mortgage- backed securities
|
|
|
75,967
|
|
|
|
|
|
|
|
75,967
|
|
|
|
|
|
Corporate debt securities
|
|
|
4,656
|
|
|
|
|
|
|
|
4,656
|
|
|
|
|
|
Other debt securities
|
|
|
731
|
|
|
|
|
|
|
|
731
|
|
|
|
|
|
Marketable equity securities
|
|
|
14,345
|
|
|
|
14,272
|
|
|
|
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value
|
|
$
|
102,751
|
|
|
$
|
16,290
|
|
|
$
|
86,388
|
|
|
$
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no transfers in or out of Level 1 and
Level 2 for the year ended December 31, 2010.
The changes in Level 3 assets measured at fair value on a
recurring basis which consist of marketable equity securities
are summarized in the following table for the years ended
December 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Balance at beginning of year
|
|
$
|
73
|
|
|
$
|
2,114
|
|
Total gains or losses (realized/unrealized):
|
|
|
|
|
|
|
|
|
Included in earnings-realized
|
|
|
|
|
|
|
|
|
Included in earnings-unrealized
|
|
|
|
|
|
|
|
|
Included in other comprehensive income
|
|
|
|
|
|
|
43
|
|
Purchases, sales, issuances and settlements, net
|
|
|
|
|
|
|
|
|
Transfers in and/or out of Level 3
|
|
|
|
|
|
|
(2,084
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
73
|
|
|
$
|
73
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gains relating to instruments still held at
year end
|
|
$
|
|
|
|
$
|
43
|
|
83
Rockville
Financial, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
Items Measured
at Fair Value on a Non-Recurring Basis:
The following is a description of the valuation methodologies
used for certain assets that are recorded at fair value on a
non-recurring basis. There were no liabilities recorded at fair
value on a non-recurring basis.
The Company may also be required, from time to time, to measure
certain other assets on a nonrecurring basis in accordance with
generally accepted accounting principles. These adjustments to
fair value usually result from application of
lower-of-cost-or-market
accounting or write-downs of individual assets.
Other Real Estate Owned: The Company
classifies property acquired through foreclosure or acceptance
of
deed-in-lieu
of foreclosure as other real estate owned in its financial
statements. Upon foreclosure, the property securing the loan is
written down to 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; however, assumptions made are
based on managements judgment of the appraisals and
current real estate market conditions and therefore these assets
are classified as non-recurring Level 3 assets in the fair
value hierarchy.
Impaired Loans: Accounting standards
require that a creditor recognize the impairment of a loan if
the present value of expected future cash flows discounted at
the loans effective interest rate (or, alternatively, the
observable market price of the loan or the fair value of the
collateral) is less than the recorded investment in the impaired
loan. Non-recurring fair value adjustments to collateral
dependent loans are recorded, when necessary, to reflect partial
write-downs or specific reserves based upon observable market
price or current appraised value of the collateral. The Company
records these impaired loans as non-recurring Level 3 fair
value measurements.
Assets Recorded at Fair Value on a Non-recurring
Basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
Total
|
|
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Gains/(Losses)
|
|
|
|
(In thousands)
|
|
|
Impaired loans
|
|
$
|
2,648
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,004
|
|
|
$
|
(1,356
|
)
|
Other real estate owned
|
|
|
990
|
|
|
|
|
|
|
|
|
|
|
|
990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value
|
|
$
|
3,638
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,994
|
|
|
$
|
(1,356
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
5,473
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,473
|
|
|
$
|
(381
|
)
|
Other real estate owned
|
|
|
3,061
|
|
|
|
|
|
|
|
|
|
|
|
3,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value
|
|
$
|
8,534
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
8,534
|
|
|
$
|
(381
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value of Financial Instruments
As of December 31, 2010 and 2009, the carrying value and
estimated fair values of the Companys financial
instruments are as follows. Certain financial instruments and
all nonfinancial instruments are exempt from disclosure
requirements. Accordingly, the aggregate fair value amounts
presented herein may not necessarily represent the underlying
fair value of the Company.
84
Rockville
Financial, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
|
|
Amount
|
|
Value
|
|
Amount
|
|
Value
|
|
|
(In thousands)
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
60,708
|
|
|
$
|
60,708
|
|
|
$
|
19,307
|
|
|
$
|
19,307
|
|
Available for sale securities
|
|
|
125,447
|
|
|
|
125,447
|
|
|
|
102,751
|
|
|
|
102,751
|
|
Held to maturity securities
|
|
|
13,679
|
|
|
|
14,638
|
|
|
|
19,074
|
|
|
|
20,011
|
|
Loans held for sale
|
|
|
380
|
|
|
|
380
|
|
|
|
|
|
|
|
|
|
Loans
receivable-net
|
|
|
1,410,498
|
|
|
|
1,415,387
|
|
|
|
1,361,019
|
|
|
|
1,360,789
|
|
FHLBB stock
|
|
|
17,007
|
|
|
|
17,007
|
|
|
|
17,007
|
|
|
|
17,007
|
|
Accrued interest receivable
|
|
|
4,176
|
|
|
|
4,176
|
|
|
|
4,287
|
|
|
|
4,287
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
1,219,260
|
|
|
|
1,200,517
|
|
|
|
1,129,108
|
|
|
|
1,135,815
|
|
Mortgagors and investors escrow accounts
|
|
|
6,131
|
|
|
|
6,131
|
|
|
|
6,385
|
|
|
|
6,385
|
|
Advances from the FHLBB
|
|
|
261,423
|
|
|
|
274,557
|
|
|
|
263,802
|
|
|
|
276,619
|
|
|
|
Note 6.
|
RESTRICTIONS
ON CASH AND DUE FROM BANKS
|
The Company is required to maintain a percentage of transaction
account balances on deposit in non-interest-earning reserves
with the Federal Reserve Bank that was offset by the
Companys average vault cash. As of December 31, 2010
and 2009, the Company was required to have cash and liquid
assets of $3.2 million to meet these requirements. The
Company maintains a compensating balance of $600,000 to
partially offset service fees charged by the Federal Reserve
Bank. The Company is also required to maintain a reserve balance
with Bankers Bank Northeast (BBN) as part of their
coin and currency contract with BBN. The required reserve
amounted to $800,000 as of December 31, 2010 and
December 31, 2009.
85
Rockville
Financial, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
|
|
Note 7.
|
INVESTMENT
SECURITIES
|
The amortized cost, gross unrealized gains, gross unrealized
losses and fair values of investment securities at
December 31, 2010 and 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and government-sponsored enterprise obligations
|
|
$
|
35,018
|
|
|
$
|
|
|
|
$
|
691
|
|
|
$
|
34,327
|
|
Government-sponsored residential mortgage-backed securities
|
|
|
67,047
|
|
|
|
3,358
|
|
|
|
15
|
|
|
|
70,390
|
|
Corporate debt securities
|
|
|
5,895
|
|
|
|
|
|
|
|
1,887
|
|
|
|
4,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
|
107,960
|
|
|
|
3,358
|
|
|
|
2,593
|
|
|
|
108,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable equity securities, by sector:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banks
|
|
|
1,256
|
|
|
|
3,366
|
|
|
|
9
|
|
|
|
4,613
|
|
Consumer and household products
|
|
|
1,134
|
|
|
|
67
|
|
|
|
24
|
|
|
|
1,177
|
|
Food and beverage service
|
|
|
1,151
|
|
|
|
326
|
|
|
|
30
|
|
|
|
1,447
|
|
Government-sponsored enterprises
|
|
|
283
|
|
|
|
58
|
|
|
|
63
|
|
|
|
278
|
|
Healthcare/pharmaceutical
|
|
|
387
|
|
|
|
|
|
|
|
44
|
|
|
|
343
|
|
Industrial
|
|
|
695
|
|
|
|
313
|
|
|
|
20
|
|
|
|
988
|
|
Integrated utilities
|
|
|
742
|
|
|
|
93
|
|
|
|
|
|
|
|
835
|
|
Mutual funds
|
|
|
2,666
|
|
|
|
100
|
|
|
|
|
|
|
|
2,766
|
|
Oil and gas
|
|
|
754
|
|
|
|
608
|
|
|
|
|
|
|
|
1,362
|
|
Technology/Semiconductor
|
|
|
228
|
|
|
|
142
|
|
|
|
|
|
|
|
370
|
|
Telecommunications
|
|
|
662
|
|
|
|
103
|
|
|
|
5
|
|
|
|
760
|
|
Transportation
|
|
|
294
|
|
|
|
57
|
|
|
|
|
|
|
|
351
|
|
Other industries
|
|
|
1,030
|
|
|
|
420
|
|
|
|
18
|
|
|
|
1,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total marketable equity securities
|
|
|
11,282
|
|
|
|
5,653
|
|
|
|
213
|
|
|
|
16,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale
|
|
$
|
119,242
|
|
|
$
|
9,011
|
|
|
$
|
2,806
|
|
|
$
|
125,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored residential mortgage-backed
|
|
$
|
13,679
|
|
|
$
|
959
|
|
|
$
|
|
|
|
$
|
14,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86
Rockville
Financial, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and government-sponsored enterprise obligations
|
|
$
|
7,017
|
|
|
$
|
36
|
|
|
$
|
1
|
|
|
$
|
7,052
|
|
Government-sponsored residential mortgage-backed securities
|
|
|
72,537
|
|
|
|
3,431
|
|
|
|
1
|
|
|
|
75,967
|
|
Corporate debt securities
|
|
|
5,879
|
|
|
|
|
|
|
|
1,223
|
|
|
|
4,656
|
|
Other debt securities
|
|
|
722
|
|
|
|
9
|
|
|
|
|
|
|
|
731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
|
86,155
|
|
|
|
3,476
|
|
|
|
1,225
|
|
|
|
88,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable equity securities, by sector:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banks
|
|
|
1,256
|
|
|
|
2,470
|
|
|
|
173
|
|
|
|
3,553
|
|
Consumer and household products
|
|
|
839
|
|
|
|
40
|
|
|
|
17
|
|
|
|
862
|
|
Food and beverage service
|
|
|
948
|
|
|
|
158
|
|
|
|
41
|
|
|
|
1,065
|
|
Government-sponsored enterprises
|
|
|
284
|
|
|
|
217
|
|
|
|
|
|
|
|
501
|
|
Healthcare/pharmaceutical
|
|
|
387
|
|
|
|
3
|
|
|
|
19
|
|
|
|
371
|
|
Industrial
|
|
|
639
|
|
|
|
134
|
|
|
|
13
|
|
|
|
760
|
|
Integrated utilities
|
|
|
742
|
|
|
|
69
|
|
|
|
|
|
|
|
811
|
|
Miscellaneous
|
|
|
1,030
|
|
|
|
263
|
|
|
|
6
|
|
|
|
1,287
|
|
Mutual funds
|
|
|
2,621
|
|
|
|
62
|
|
|
|
|
|
|
|
2,683
|
|
Oil and gas
|
|
|
754
|
|
|
|
353
|
|
|
|
12
|
|
|
|
1,095
|
|
Technology/Semiconductor
|
|
|
342
|
|
|
|
173
|
|
|
|
|
|
|
|
515
|
|
Telecommunications
|
|
|
354
|
|
|
|
|
|
|
|
15
|
|
|
|
339
|
|
Transportation
|
|
|
313
|
|
|
|
190
|
|
|
|
|
|
|
|
503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total marketable equity securities
|
|
|
10,509
|
|
|
|
4,132
|
|
|
|
296
|
|
|
|
14,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale
|
|
$
|
96,664
|
|
|
$
|
7,608
|
|
|
$
|
1,521
|
|
|
$
|
102,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored residential mortgage-backed securities
|
|
$
|
19,074
|
|
|
$
|
937
|
|
|
$
|
|
|
|
$
|
20,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2010, the net unrealized gain on securities
available for sale of $6.2 million, net of income taxes of
$2.2 million, or $4.0 million, is included in
accumulated other comprehensive loss. At December 31, 2009,
the net unrealized gain on securities available for sale of
$6.1 million, net of income taxes of $2.1 million, or
$4.0 million, is included in accumulated other
comprehensive loss.
87
Rockville
Financial, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
The amortized cost and fair value of debt securities at
December 31, 2010 by contractual maturities are presented
below. Actual maturities may differ from contractual maturities
because the securities may be called or repaid without any
penalties. Because mortgage-backed securities require periodic
principal paydowns, they are not included in the maturity
categories in the following maturity summary.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale
|
|
|
Held to Maturity
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 1 year
|
|
$
|
3,120
|
|
|
$
|
3,117
|
|
|
$
|
|
|
|
$
|
|
|
Over 1 year to 5 years
|
|
|
14,966
|
|
|
|
14,838
|
|
|
|
|
|
|
|
|
|
Over 5 years to 10 years
|
|
|
19,999
|
|
|
|
19,430
|
|
|
|
|
|
|
|
|
|
Over 10 years
|
|
|
2,828
|
|
|
|
950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,913
|
|
|
|
38,335
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
|
67,047
|
|
|
|
70,390
|
|
|
|
13,679
|
|
|
|
14,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
$
|
107,960
|
|
|
$
|
108,725
|
|
|
$
|
13,679
|
|
|
$
|
14,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2010, securities with a fair value of
$3.0 million were pledged to secure public deposits. At
December 31 2009, securities with a fair value of
$2.0 million were pledged to secure public deposits and
U.S. Treasury, tax and loan payments.
For the years ended December 31, 2010, 2009 and 2008, gross
gains of $190,000, $936,000 and $689,000, respectively, were
realized on the sale of available for sale securities. Gross
losses realized on the sale of available for sale securities
were negligible in 2010 and 2009 and were $308,000 in 2008.
As of December 31, 2010 and 2009, the Company did not own
any investment or mortgage-backed securities of a single issuer,
other than securities guaranteed by the U.S. Government or
government-sponsored enterprises, which had an aggregate book
value in excess of 10% of the Companys stockholders
equity.
The following table summarizes gross unrealized losses and fair
value, aggregated by investment category and length of time the
investments have been in a continuous unrealized loss position,
at December 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than Twelve Months
|
|
|
Over Twelve Months
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and government-sponsored enterprises
|
|
$
|
34,327
|
|
|
$
|
691
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
34,327
|
|
|
$
|
691
|
|
Government-sponsored residential mortgage-backed securities
|
|
|
5,046
|
|
|
|
14
|
|
|
|
30
|
|
|
|
1
|
|
|
|
5,076
|
|
|
|
15
|
|
Corporate debt
|
|
|
|
|
|
|
|
|
|
|
3,908
|
|
|
|
1,887
|
|
|
|
3,908
|
|
|
|
1,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
|
39,373
|
|
|
|
705
|
|
|
|
3,938
|
|
|
|
1,888
|
|
|
|
43,311
|
|
|
|
2,593
|
|
Marketable equity securities
|
|
|
1,097
|
|
|
|
152
|
|
|
|
624
|
|
|
|
61
|
|
|
|
1,721
|
|
|
|
213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
40,470
|
|
|
$
|
857
|
|
|
$
|
4,562
|
|
|
$
|
1,949
|
|
|
$
|
45,032
|
|
|
$
|
2,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88
Rockville
Financial, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than Twelve Months
|
|
|
Over Twelve Months
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and government-sponsored enterprises
|
|
$
|
2,018
|
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,018
|
|
|
$
|
1
|
|
Government-sponsored residential mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
58
|
|
|
|
1
|
|
|
|
58
|
|
|
|
1
|
|
Corporate debt
|
|
|
|
|
|
|
|
|
|
|
4,556
|
|
|
|
1,223
|
|
|
|
4,556
|
|
|
|
1,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
|
2,018
|
|
|
|
1
|
|
|
|
4,614
|
|
|
|
1,224
|
|
|
|
6,632
|
|
|
|
1,225
|
|
Marketable equity securities
|
|
|
1,097
|
|
|
|
184
|
|
|
|
1,099
|
|
|
|
112
|
|
|
|
2,196
|
|
|
|
296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,115
|
|
|
$
|
185
|
|
|
$
|
5,713
|
|
|
$
|
1,336
|
|
|
$
|
8,828
|
|
|
$
|
1,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of the securities summarized above as of December 31, 2010,
21 issues have unrealized losses for less than twelve months and
9 issues had unrealized losses for twelve months or more. As of
December 31, 2009, 9 issues had unrealized losses for less
than twelve months and 13 issues had losses for twelve months or
more.
There were no held to maturity securities with unrealized losses
at December 31, 2010 or 2009.
U.S. Government and government-sponsored enterprises and
Mortgage-backed securities. The unrealized losses
on the Companys U.S. Government and
government-sponsored securities were caused by increases in the
rate spread to comparable government securities. The Company
does not expect these securities to settle at a price less than
the par value of the investments. Because the Company does not
intend to sell the investments and it is not more likely than
not that the Company will be required to sell the investments
before the recovery of their amortized cost basis, which may be
maturity, the Company does not consider these investments to be
other-than-temporarily
impaired at December 31, 2010.
Corporate Debt Securities. The unrealized
losses on corporate debt securities relate to one AA+ rated
corporate bond and one pooled trust preferred security
(Preferred Term Security XXVIII, Ltd., or PRETSL
XXVIII). The unrealized loss on the corporate bond was
caused by the low interest rate environment because it floats
quarterly to three month LIBOR. The unrealized loss on the
PRETSL XXVIII investment was caused by the low interest rate
environment as the securitys rate floats quarterly to the
three month LIBOR. No loss of principal or break in yield is
projected. Based on the existing credit profile, management does
not believe that these investments will suffer from any credit
related losses. Because the Company does not intend to sell the
investments and it is not more likely than not that the Company
will be required to sell the investments before recovery of
their amortized cost basis, which may be maturity, the Company
does not consider these investments to be
other-than-temporarily
impaired at December 31, 2010.
Marketable Equity Securities. The
Companys investments in marketable equity securities
consist of common stock, preferred stock and mutual funds. The
unrealized losses are spread out among several industries with
no concentration in any one security. Management evaluated the
near-term prospects of the issuers and the Companys
ability and intent to hold the investments for a reasonable
period of time sufficient for an anticipated recovery of fair
value. The Company does not consider these investments to be
other-than-temporarily
impaired at December 31, 2010.
During the year ended December 31, 2010, the Company
recorded no
other-than-temporary
impairment charges. The Company will continue to review its
entire portfolio for
other-than-temporarily
impaired
89
Rockville
Financial, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
securities with additional attention being given to high risk
securities such as the one pooled trust preferred security that
the Company owns.
During the year ended December 31, 2009, the Company
recorded an
other-than-temporary
impairment charge of $65,000 related to one mutual fund. The
charge for the impairment was computed using the closing price
of the security as of the date of impairment. The Companys
remaining investment in this mutual fund was $1.4 million
with a $55,000 unrealized gain at December 31, 2009. During
the year ended December 31, 2009, the Company recorded an
other-than-temporary
impairment charge of $297,000 related to five common stock
securities. The charge for the impairment was computed using the
closing prices of the securities as of the dates of impairment.
The Companys remaining investment in these five common
stock securities was $648,000 with a net $133,000 unrealized
loss at December 31, 2009.
|
|
Note 8.
|
LOANS AND
ALLOWANCE FOR LOAN LOSSES
|
A summary of the Companys loan portfolio at
December 31, 2010 and 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
719,925
|
|
|
$
|
754,838
|
|
Commercial
|
|
|
489,511
|
|
|
|
426,028
|
|
Construction
|
|
|
78,627
|
|
|
|
71,078
|
|
|
|
|
|
|
|
|
|
|
Total real estate loans
|
|
|
1,288,063
|
|
|
|
1,251,944
|
|
Commercial business loans
|
|
|
130,303
|
|
|
|
113,240
|
|
Installment loans
|
|
|
4,036
|
|
|
|
5,783
|
|
Collateral loans
|
|
|
1,885
|
|
|
|
1,959
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
1,424,287
|
|
|
|
1,372,926
|
|
Net deferred loan costs and premiums
|
|
|
523
|
|
|
|
632
|
|
Allowance for loan losses
|
|
|
(14,312
|
)
|
|
|
(12,539
|
)
|
|
|
|
|
|
|
|
|
|
Loans net
|
|
$
|
1,410,498
|
|
|
$
|
1,361,019
|
|
|
|
|
|
|
|
|
|
|
The Company has transferred a portion of its originated
commercial real estate loans to participating lenders. The
amounts transferred have been accounted for as sales and are
therefore not included in the Companys accompanying
consolidated balance sheets. The Company and participating
lenders share ratably in any gains or losses that may result
from a borrowers lack of compliance with contractual terms
of the loan. The Company continues to service the loans on
behalf of the participating lenders and, as such, collects cash
payments from the borrowers, remits payments (net of servicing
fees) to participating lenders and disburses required escrow
funds to relevant parties. At December 31, 2010 and 2009,
the Company was servicing commercial loans for participants
aggregating $2.6 million and $900,000, respectively.
At December 31, 2010 and 2009, the unpaid principal
balances of loans placed on non-accrual status were
$12.4 million and $12.0 million, respectively. If
non-accrual loans had been performing in accordance with their
original terms, the Company would have recorded $677,000,
$233,000 and $237,000 in additional interest income during the
years ended December 31, 2010, 2009 and 2008, respectively.
Company policy requires six months of continuous payments in
order for the loan to be removed from non-accrual status. As of
December 31, 2010 and 2009, there were no loans
contractually past due 90 days or more and still accruing
interest.
90
Rockville
Financial, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
The following information relates to impaired loans as of and
for the years ended December 31, 2010, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Recorded investment in impaired loans for which there is a
related allowance for loan losses
|
|
$
|
2,233
|
|
|
$
|
5,854
|
|
|
$
|
2,840
|
|
Recorded investment in impaired loans for which there is no
related allowance for loan losses
|
|
|
10,127
|
|
|
|
6,192
|
|
|
|
7,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impaired loans
|
|
$
|
12,360
|
|
|
$
|
12,046
|
|
|
$
|
10,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance related to impaired loans
|
|
$
|
358
|
|
|
$
|
381
|
|
|
$
|
473
|
|
Average recorded investment in impaired loans
|
|
$
|
13,112
|
|
|
$
|
13,356
|
|
|
$
|
5,358
|
|
Interest income recognized on impaired loans on a cash basis
|
|
$
|
343
|
|
|
$
|
250
|
|
|
$
|
508
|
|
The Company has no commitments to lend additional funds to
borrowers whose loans are impaired.
Credit
Quality Information
The Company utilizes a nine grade internal loan rating system
for residential and commercial real estate, construction,
commercial and installment and other 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 are starting
to show 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 obligors
and/or the
collateral pledged. 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 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 officers assessment of risk. More complex loans, such
as commercial business loans and commercial real estate, require
that our internal independent credit area further evaluate the
risk rating of the individual loan, with the credit area 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
borrowers and economic conditions warrant. The credit
quality of the Companys loan portfolio is reviewed by a
third-party risk assessment firm on a semi-annual basis and by
the Companys 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 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.
91
Rockville
Financial, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
The following table presents the Companys loans by risk
rating at December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Installment
|
|
|
|
Residential
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
and
|
|
|
|
Real Estate
|
|
|
Real Estate
|
|
|
Construction
|
|
|
Commercial
|
|
|
Collateral
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Loans rated 1 5
|
|
$
|
711,949
|
|
|
$
|
451,723
|
|
|
$
|
70,647
|
|
|
$
|
125,280
|
|
|
$
|
5,876
|
|
Loans rated 6
|
|
|
2,047
|
|
|
|
22,838
|
|
|
|
2,960
|
|
|
|
1,869
|
|
|
|
11
|
|
Loans rated 7
|
|
|
5,929
|
|
|
|
14,950
|
|
|
|
5,020
|
|
|
|
3,154
|
|
|
|
34
|
|
Loans rated 8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans rated 9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
719,925
|
|
|
$
|
489,511
|
|
|
$
|
78,627
|
|
|
$
|
130,303
|
|
|
$
|
5,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys lending activities are conducted principally
in Connecticut. The Company grants single-family and
multi-family residential loans, commercial loans and a variety
of consumer loans. In addition, the Company grants loans for the
construction of residential homes, residential developments and
land development projects. The ultimate repayment of these loans
is dependent on the local economy and real estate market.
Changes in the allowance for loan losses for the years ended
December 31, 2010, 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Balance, beginning of year
|
|
$
|
12,539
|
|
|
$
|
12,553
|
|
|
$
|
10,620
|
|
Provision for loan losses
|
|
|
4,109
|
|
|
|
1,961
|
|
|
|
2,393
|
|
Loans charged-off
|
|
|
(2,376
|
)
|
|
|
(2,113
|
)
|
|
|
(621
|
)
|
Recoveries of loans previously charged-off
|
|
|
40
|
|
|
|
138
|
|
|
|
161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
14,312
|
|
|
$
|
12,539
|
|
|
$
|
12,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Further information pertaining to the allowance for loan losses
at December 31, 2010 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Installment
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
and
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
|
Real Estate
|
|
|
Construction
|
|
|
Commercial
|
|
|
Collateral
|
|
|
Unallocated
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Amount of allowance for loan losses for loans deemed to be
impaired
|
|
$
|
156
|
|
|
$
|
21
|
|
|
$
|
|
|
|
$
|
176
|
|
|
$
|
5
|
|
|
$
|
|
|
|
$
|
358
|
|
Amount of allowance for loan losses for loans not deemed to be
impaired
|
|
|
4,532
|
|
|
|
5,448
|
|
|
|
1,653
|
|
|
|
2,120
|
|
|
|
76
|
|
|
|
125
|
|
|
|
13,954
|
|
Loans deemed to be impaired
|
|
|
5,976
|
|
|
|
2,990
|
|
|
|
2,646
|
|
|
|
714
|
|
|
|
34
|
|
|
|
|
|
|
|
12,360
|
|
Loans not deemed to be impaired as of
|
|
|
713,949
|
|
|
|
486,521
|
|
|
|
75,981
|
|
|
|
129,589
|
|
|
|
5,887
|
|
|
|
|
|
|
|
1,411,927
|
|
92
Rockville
Financial, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
The following is a summary of past due and non-accrual loans at
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Past Due 90
|
|
|
|
|
|
|
30-59 Days
|
|
|
60-89 Days
|
|
|
Greater than
|
|
|
Total
|
|
|
Days or More
|
|
|
Loans on
|
|
|
|
Past Due
|
|
|
Past Due
|
|
|
90 Days
|
|
|
Past Due
|
|
|
and Still Accruing
|
|
|
Non-accrual
|
|
|
|
(In thousands)
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
7,899
|
|
|
$
|
1,634
|
|
|
$
|
2,952
|
|
|
$
|
12,486
|
|
|
$
|
|
|
|
$
|
5,976
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
2,347
|
|
|
|
2,347
|
|
|
|
|
|
|
|
2,990
|
|
Construction
|
|
|
1,101
|
|
|
|
187
|
|
|
|
2,646
|
|
|
|
3,934
|
|
|
|
|
|
|
|
2,646
|
|
Commercial business loans
|
|
|
200
|
|
|
|
119
|
|
|
|
445
|
|
|
|
764
|
|
|
|
|
|
|
|
714
|
|
Installment and collateral
|
|
|
11
|
|
|
|
4
|
|
|
|
34
|
|
|
|
48
|
|
|
|
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,211
|
|
|
$
|
1,944
|
|
|
$
|
8,424
|
|
|
$
|
19,579
|
|
|
$
|
|
|
|
$
|
12,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a summary of impaired loans at
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
Unpaid
|
|
|
|
|
|
|
Recorded
|
|
|
Principal
|
|
|
Related
|
|
|
|
Investment
|
|
|
Balance
|
|
|
Allowance
|
|
|
|
(In thousands)
|
|
|
Impaired loans without a valuation allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
4,804
|
|
|
$
|
4,804
|
|
|
$
|
|
|
Commercial
|
|
|
2,393
|
|
|
|
2,393
|
|
|
|
|
|
Construction
|
|
|
2,646
|
|
|
|
2,646
|
|
|
|
|
|
Commercial business loans
|
|
|
277
|
|
|
|
277
|
|
|
|
|
|
Installment and collateral
|
|
|
7
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
10,127
|
|
|
|
10,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans with a valuation allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
1,016
|
|
|
|
1,172
|
|
|
|
156
|
|
Commercial
|
|
|
576
|
|
|
|
597
|
|
|
|
21
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business loans
|
|
|
261
|
|
|
|
437
|
|
|
|
176
|
|
Installment and collateral
|
|
|
22
|
|
|
|
27
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,875
|
|
|
|
2,233
|
|
|
|
358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
12,002
|
|
|
$
|
12,360
|
|
|
$
|
358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93
Rockville
Financial, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
In the normal course of business, the Company grants loans to
executive officers, Directors and other related parties. Changes
in loans outstanding to such related parties for the years ended
December 31, 2010 and 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Balance, beginning of year
|
|
$
|
3,719
|
|
|
$
|
4,050
|
|
Loans to related parties who terminated service during the year
|
|
|
|
|
|
|
(261
|
)
|
Additional loans and advances
|
|
|
860
|
|
|
|
868
|
|
Repayments
|
|
|
(590
|
)
|
|
|
(938
|
)
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
3,989
|
|
|
$
|
3,719
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010 and 2009, all related party loans
were performing.
Related party loans were made on the same terms as those for
comparable loans and transactions with unrelated parties, other
than certain mortgage loans which were made to employees with
over one year of service with the Company which have rates 0.50%
below market rates at the time of origination.
Loan
Servicing
The Company services certain loans for third parties. The
aggregate of loans serviced for others was $120.5 million
and $57.7 million as of December 31, 2010 and 2009,
respectively. The balances of these loans are not included in
the accompanying consolidated statement of condition.
The risks inherent in mortgage servicing assets relate primarily
to changes in prepayments that result from shifts in mortgage
interest rates. The fair value of servicing rights was
determined using pretax internal rates of return ranging from
8.0% to 10.0% and the Public Securities Association
(PSA) Standard Prepayment model to estimate
prepayments on the portfolio with an average prepayment speed of
282%.
Mortgage servicing rights are included in other assets in the
consolidated statements of condition. The following table
summarizes mortgage servicing rights capitalized and amortized
for the years ended December 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Mortgage servicing rights:
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
475
|
|
|
$
|
68
|
|
Additions
|
|
|
497
|
|
|
|
446
|
|
Disposals
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
114
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
Balance at year end
|
|
$
|
858
|
|
|
$
|
475
|
|
|
|
|
|
|
|
|
|
|
Fair value of mortgage servicing assets at year end
|
|
$
|
1,011
|
|
|
$
|
481
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 9.
|
OTHER
REAL ESTATE OWNED
|
Other real estate owned totaled $990,000 at December 31,
2010 and consisted of $404,000 of commercial real estate
properties and $586,000 of residential real estate properties,
which are held for sale at December 31,
94
Rockville
Financial, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
2010. At December 31, 2009, other real estate owned
consisted of $3.0 million of commercial real estate
properties and $38,000 of residential real estate properties.
Other income totaling $150,000 was generated in 2010 from the
rental of other real estate owned property. Other real estate
owned expenses were $569,000 and $69,000 for the years ended
December 31, 2010 and 2009, respectively. There was no
other real estate owned at or during the year ended
December 31, 2008.
The following is a summary of the activity for other real estate
owned:
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Balance at beginning of year
|
|
$
|
3,061
|
|
|
$
|
|
|
Additions
|
|
|
4,356
|
|
|
|
4,904
|
|
Write-downs
|
|
|
(866
|
)
|
|
|
|
|
Proceeds from sales
|
|
|
(5,120
|
)
|
|
|
(1,859
|
)
|
Loss (Gain) on sale
|
|
|
(441
|
)
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
990
|
|
|
$
|
3,061
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 10.
|
PREMISES
AND EQUIPMENT
|
Premises and equipment at December 31, 2010 and 2009 are
summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Estimated
|
|
|
|
2010
|
|
|
2009
|
|
|
Useful Lives
|
|
|
|
(In thousands)
|
|
|
|
|
|
Land and improvements
|
|
$
|
440
|
|
|
$
|
236
|
|
|
|
N/A
|
|
Buildings
|
|
|
15,371
|
|
|
|
15,675
|
|
|
|
39.5 years
|
|
Furniture and equipment
|
|
|
9,454
|
|
|
|
9,483
|
|
|
|
3 -10 years
|
|
Leasehold improvements
|
|
|
3,882
|
|
|
|
3,762
|
|
|
|
5 -10 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,147
|
|
|
|
29,156
|
|
|
|
|
|
Accumulated depreciation and amortization
|
|
|
(14,235
|
)
|
|
|
(13,293
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14,912
|
|
|
$
|
15,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense was $1.4 million,
$1.6 million and $1.5 million for the years ended
December 31, 2010, 2009 and 2008, respectively.
95
Rockville
Financial, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
Deposits at December 31, 2010 and 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Demand and NOW
|
|
$
|
286,061
|
|
|
$
|
258,583
|
|
Regular savings
|
|
|
162,090
|
|
|
|
143,601
|
|
Money market and investment savings
|
|
|
227,007
|
|
|
|
234,737
|
|
Club accounts
|
|
|
272
|
|
|
|
247
|
|
Time deposits
|
|
|
543,830
|
|
|
|
491,940
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,219,260
|
|
|
$
|
1,129,108
|
|
|
|
|
|
|
|
|
|
|
Time deposits in denominations of $100,000 or more were
$217.3 million and $168.5 million as of
December 31, 2010 and 2009, respectively.
Contractual maturities of time deposits as of December 31,
2010 are summarized below:
|
|
|
|
|
|
|
(In thousands)
|
|
|
2011
|
|
$
|
369,431
|
|
2012
|
|
|
98,095
|
|
2013
|
|
|
24,546
|
|
2014
|
|
|
11,001
|
|
2015
|
|
|
39,417
|
|
Thereafter
|
|
|
1,340
|
|
|
|
|
|
|
|
|
$
|
543,830
|
|
|
|
|
|
|
Deposit accounts of officers, Directors, and other related
parties aggregated $3.9 million and $3.3 million at
December 31, 2010 and 2009, respectively.
A summary of interest expense by account type for the years
ended December 31, 2010, 2009 and 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Non-time deposits
|
|
$
|
4,064
|
|
|
$
|
3,101
|
|
|
$
|
5,552
|
|
Time deposits
|
|
|
7,553
|
|
|
|
16,270
|
|
|
|
19,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,617
|
|
|
$
|
19,371
|
|
|
$
|
25,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 12.
|
FEDERAL
HOME LOAN BANK BORROWINGS AND STOCK
|
The Bank is a member of the Federal Home Loan Bank of Boston
(FHLBB). At December 31, 2010 and 2009, the
Bank had access to a pre-approved secured line of credit with
the FHLBB of $10.0 million. In accordance with an agreement
with the FHLBB, the qualified collateral must be free and clear
of liens, pledges and encumbrances. At December 31, 2010
and 2009, there were no advances outstanding under the line of
credit.
96
Rockville
Financial, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
Contractual maturities and weighted average rates of outstanding
advances from the FHLBB as of December 31, 2010 and 2009
are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Amount
|
|
|
Rate
|
|
|
Amount
|
|
|
Rate
|
|
|
|
(Dollars in thousands)
|
|
|
2010
|
|
$
|
|
|
|
|
|
%
|
|
$
|
40,170
|
|
|
|
2.78
|
%
|
2011
|
|
|
73,320
|
|
|
|
3.70
|
|
|
|
73,320
|
|
|
|
3.70
|
|
2012
|
|
|
37,400
|
|
|
|
4.21
|
|
|
|
37,400
|
|
|
|
4.21
|
|
2013
|
|
|
63,000
|
|
|
|
4.12
|
|
|
|
63,000
|
|
|
|
4.12
|
|
2014
|
|
|
26,912
|
|
|
|
4.13
|
|
|
|
26,912
|
|
|
|
4.13
|
|
2015
|
|
|
39,000
|
|
|
|
2.95
|
|
|
|
|
|
|
|
|
|
Thereafter
|
|
|
21,791
|
|
|
|
3.61
|
|
|
|
23,000
|
|
|
|
4.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
261,423
|
|
|
|
3.80
|
%
|
|
$
|
263,802
|
|
|
|
3.81
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2010, five advances totaling
$30.0 million with interest rates ranging from 3.19% to
4.39% and maturities of less than two years are callable.
Advances are collateralized by first mortgage loans with an
estimated eligible collateral value of $392.5 million and
$410.3 million at December 31, 2010 and 2009,
respectively. The Bank is required to acquire and hold shares of
capital stock in the FHLBB in an amount at least equal to the
sum of 0.35% of the aggregate principal amount of its unpaid
residential mortgage loans and similar obligations at the
beginning of each year, and up to 4.5% of its advances
(borrowings) from the FHLBB. The carrying value of FHLBB stock
approximates fair value based on the most recent redemption
provisions of the stock.
|
|
Note 13.
|
PENSION
PLANS AND OTHER POST-RETIREMENT BENEFITS:
|
The Company sponsors a noncontributory defined benefit pension
plan (the Pension Plan) covering all full-time
employees hired before January 1, 2005. Participants become
100% vested after five years of employment. The Companys
funding policy is to contribute annually the maximum amount that
can be deducted for Federal income tax purposes, while meeting
the minimum funding standards established by the ERISA.
The measurement date of the pension plan assets and benefit
obligations is the Companys year-end.
The Company also has Supplemental Executive Retirement Plans
(the SERP) with certain executive officers that
provide for retirement benefits defined in the individual
agreements. For one executive, the SERP benefit is offset by the
executives benefits under the Pension Plan, the
Supplemental Savings and Retirement Plan, Supplemental Executive
Retirement Agreement and any split dollar insurance policy
benefits. The Company also has supplemental retirement plans
(the Supplemental Plans) that provide benefits for
certain key executive officers. The Supplemental Plans provide
restorative payments to certain executives who are prevented
from receiving the full benefits contemplated by the Pension
Plan, 401(k) Plan and Employee Stock Ownership Plan. Benefits
under the Supplemental Plans are based on a predetermined
formula. The benefits under the Supplemental Plans are reduced
by other employee benefits. The liability arising from the
Supplemental Plans is being accrued over the participants
remaining periods of service so that at the expected retirement
dates, the present value of the annual payments will have been
expensed.
The Company also provides an unfunded post-retirement medical,
health and life insurance benefit plan for retirees and
employees hired prior to March 1, 1993.
97
Rockville
Financial, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
The amounts related to the Pension Plan, Supplemental Plans and
the SERPs are reflected in the tables that follow as
Pension Plans.
The following table sets forth the plans change in benefit
obligation, plan assets and the funded status of the pension
plans and other postretirement benefits plans, using a December
31 measurement date in 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Post-Retirement
|
|
|
|
Pension Plans
|
|
|
Benefits
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Change in Benefit Obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
21,842
|
|
|
$
|
20,529
|
|
|
$
|
2,189
|
|
|
$
|
1,753
|
|
Service cost
|
|
|
831
|
|
|
|
904
|
|
|
|
17
|
|
|
|
11
|
|
Interest cost
|
|
|
1,275
|
|
|
|
1,237
|
|
|
|
122
|
|
|
|
107
|
|
Plan participants contributions
|
|
|
|
|
|
|
|
|
|
|
26
|
|
|
|
26
|
|
Amendments(1)
|
|
|
455
|
|
|
|
118
|
|
|
|
|
|
|
|
(1
|
)
|
Actuarial loss (gain)
|
|
|
1,394
|
|
|
|
(585
|
)
|
|
|
201
|
|
|
|
406
|
|
Benefits paid
|
|
|
(411
|
)
|
|
|
(361
|
)
|
|
|
(115
|
)
|
|
|
(113
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
$
|
25,386
|
|
|
$
|
21,842
|
|
|
$
|
2,440
|
|
|
$
|
2,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Plan Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
17,385
|
|
|
$
|
13,032
|
|
|
$
|
|
|
|
$
|
|
|
Actual return on plan assets
|
|
|
2,499
|
|
|
|
3,687
|
|
|
|
|
|
|
|
|
|
Employer contributions
|
|
|
928
|
|
|
|
1,027
|
|
|
|
90
|
|
|
|
88
|
|
Plan participants contributions
|
|
|
|
|
|
|
|
|
|
|
25
|
|
|
|
25
|
|
Benefits paid
|
|
|
(411
|
)
|
|
|
(361
|
)
|
|
|
(115
|
)
|
|
|
(113
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
$
|
20,401
|
|
|
$
|
17,385
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded Status:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of year
|
|
$
|
(4,985
|
)
|
|
$
|
(4,457
|
)
|
|
$
|
(2,440
|
)
|
|
$
|
(2,189
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts Recognized in the Consolidated Statements of
Condition:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses and other liabilities
|
|
$
|
(4,985
|
)
|
|
$
|
(4,457
|
)
|
|
$
|
(2,440
|
)
|
|
$
|
(2,189
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts Recognized in Accumulated Other Comprehensive Income
(Loss) Consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost (credit)
|
|
$
|
376
|
|
|
$
|
(116
|
)
|
|
$
|
10
|
|
|
$
|
28
|
|
Net loss
|
|
|
6,817
|
|
|
|
7,022
|
|
|
|
859
|
|
|
|
716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive loss
|
|
|
7,193
|
|
|
|
6,906
|
|
|
|
869
|
|
|
|
744
|
|
Deferred tax asset
|
|
|
(2,451
|
)
|
|
|
(2,348
|
)
|
|
|
(296
|
)
|
|
|
(253
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net impact on accumulated other comprehensive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
loss
|
|
$
|
4,742
|
|
|
$
|
4,558
|
|
|
$
|
573
|
|
|
$
|
491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes amendments to the pension plans for the addition of
four executive management personnel into the plans. |
98
Rockville
Financial, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
The following table sets forth the components of net periodic
benefit costs and other amounts recognized in accumulated other
comprehensive loss for the retirement plans for the years ended
December 31, 2010, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
|
Other Post-Retirement Benefits
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Components of Net Periodic Pension Cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
831
|
|
|
$
|
904
|
|
|
$
|
870
|
|
|
$
|
17
|
|
|
$
|
11
|
|
|
$
|
9
|
|
Interest cost
|
|
|
1,275
|
|
|
|
1,237
|
|
|
|
1,123
|
|
|
|
122
|
|
|
|
107
|
|
|
|
99
|
|
Expected return on plan assets
|
|
|
(1,459
|
)
|
|
|
(1,050
|
)
|
|
|
(1,335
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net actuarial losses
|
|
|
558
|
|
|
|
956
|
|
|
|
408
|
|
|
|
59
|
|
|
|
24
|
|
|
|
19
|
|
Amortization of prior service cost
|
|
|
(37
|
)
|
|
|
321
|
|
|
|
312
|
|
|
|
18
|
|
|
|
20
|
|
|
|
19
|
|
Settlement charge
|
|
|
|
|
|
|
|
|
|
|
117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
|
1,168
|
|
|
|
2,368
|
|
|
|
1,495
|
|
|
|
216
|
|
|
|
162
|
|
|
|
146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Plan Assets and Benefit Obligations Recognized in
Other Comprehensive Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss (gain)
|
|
|
354
|
|
|
|
(3,221
|
)
|
|
|
7,150
|
|
|
|
203
|
|
|
|
404
|
|
|
|
120
|
|
Change in prior service cost (credit)
|
|
|
455
|
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
Amortization of net loss
|
|
|
(558
|
)
|
|
|
(956
|
)
|
|
|
(408
|
)
|
|
|
(60
|
)
|
|
|
(24
|
)
|
|
|
(19
|
)
|
Amortization of prior service (credit) cost
|
|
|
36
|
|
|
|
(321
|
)
|
|
|
(312
|
)
|
|
|
(18
|
)
|
|
|
(19
|
)
|
|
|
(19
|
)
|
Adjustment for change in measurement date
|
|
|
|
|
|
|
|
|
|
|
(39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in other comprehensive income (loss)
|
|
|
287
|
|
|
|
(4,380
|
)
|
|
|
6,391
|
|
|
|
125
|
|
|
|
360
|
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in net periodic benefit cost and other
comprehensive income (loss)
|
|
$
|
1,455
|
|
|
$
|
(2,012
|
)
|
|
$
|
7,886
|
|
|
$
|
341
|
|
|
$
|
522
|
|
|
$
|
228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amounts in accumulated other comprehensive loss that are
expected to be recognized as components of net periodic benefit
cost during 2011 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Post-
|
|
|
|
Pension
|
|
|
Retirement
|
|
|
|
Plans
|
|
|
Benefits
|
|
|
|
(In thousands)
|
|
|
Net actuarial losses
|
|
$
|
572
|
|
|
$
|
75
|
|
Prior service (credit) costs
|
|
|
(10
|
)
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
562
|
|
|
$
|
85
|
|
|
|
|
|
|
|
|
|
|
Assumptions
Weighted-average assumptions used to determine pension benefit
obligations at December 31,
|
|
|
|
|
|
|
2010
|
|
2009
|
|
Discount rate
|
|
6.00%/5.55%(1)
|
|
6.00%/5.55%(2)
|
Rate of compensation increase
|
|
4.0%
|
|
4.0%
|
99
Rockville
Financial, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
|
|
|
(1) |
|
The discount rate was 6.00% for the Pension Plan and was 5.55%
for the Supplemental and SERP plans with measurement dates of
December 31, 2010. |
|
(2) |
|
The discount rate was 6.00% for the Pension Plan and was 5.55%
for the Supplemental and SERP plans with measurement dates of
December 31, 2009. |
Certain disaggregated information related to the Companys
defined benefit pension plans is as follows as of their
respective measurement dates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Plans
|
|
|
|
Pension Plan
|
|
|
and SERPs
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Projected benefit obligation
|
|
$
|
20,617
|
|
|
$
|
17,855
|
|
|
$
|
4,769
|
|
|
$
|
3,987
|
|
Accumulated benefit obligation
|
|
|
17,597
|
|
|
|
14,835
|
|
|
|
4,769
|
|
|
|
3,750
|
|
Fair value of plan assets
|
|
|
20,401
|
|
|
|
17,385
|
|
|
|
|
|
|
|
|
|
Weighted-average assumptions used to determine net benefit
pension expense for the years ended December 31,
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
Discount rate(1)
|
|
6.00%/6.55%
|
|
6.00%/6.40%
|
|
6.30%/6.20%
|
Expected long-term rate of return on plan assets
|
|
8.25%
|
|
8.25%
|
|
8.25%
|
Rate of compensation increase
|
|
4.50%
|
|
4.50%
|
|
4.50%
|
|
|
|
(1) |
|
The discount rate was 6.00% for the Pension Plan and 6.55% for
the supplemental and
SERP
plans with measurement dates of December 31, 2010. |
The accumulated post-retirement benefit obligation for the other
post-retirement benefits was $2.4 million and
$2.2 million as of December 31, 2010 and 2009,
respectively.
The Company does not intend to apply for the government subsidy
under Medicare Part-D for post-retirement prescription drug
benefits. Therefore, the impact of the subsidy is not reflected
in the development of the liabilities for the plan. As of
December 31, 2010, prescription drug benefits are included
in the post-retirement benefits offered to employees hired prior
to March 1, 1993.
The expected long-term rate of return is based on the actual
historical rates of return of published indices that are used to
measure the plans target assets allocation. The historical
rates are then discounted to consider fluctuations in the
historical rates as well as potential changes in the investment
environment.
Assumed
Healthcare Trend Rates
The Companys accumulated post-retirement benefit
obligations, exclusive of pensions, take into account certain
cost-sharing provisions. The annual rate of increase in the cost
of covered benefits (i.e., healthcare cost trend rate) is
assumed to be 10% at December 31, 2010, decreasing
gradually to a rate of 5% at December 31, 2013. Assumed
healthcare cost trend rates have a significant effect on the
amounts reported for the healthcare
100
Rockville
Financial, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
plans. A one percentage point change in the assumed healthcare
cost trend rate would have the following effects:
|
|
|
|
|
|
|
|
|
|
|
1%
|
|
1%
|
|
|
Increase
|
|
Decrease
|
|
|
(In thousands)
|
|
Effect on post-retirement benefit obligation
|
|
$
|
284
|
|
|
$
|
(240
|
)
|
Effect on total service and interest
|
|
|
18
|
|
|
|
(15
|
)
|
Plan
Assets
The Companys fair value of major categories of Pension
Plan assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Asset Category
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic equity funds
|
|
$
|
10,574
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
10,574
|
|
|
|
|
|
|
|
|
|
International equity funds
|
|
|
2,043
|
|
|
|
|
|
|
|
|
|
|
|
2,043
|
|
|
|
|
|
|
|
|
|
Fixed income funds
|
|
|
203
|
|
|
|
|
|
|
|
|
|
|
|
203
|
|
|
|
|
|
|
|
|
|
Domestic bond funds
|
|
|
5,517
|
|
|
|
|
|
|
|
|
|
|
|
5,517
|
|
|
|
|
|
|
|
|
|
International bond funds
|
|
|
1,029
|
|
|
|
|
|
|
|
|
|
|
|
1,029
|
|
|
|
|
|
|
|
|
|
Real estate REIT index funds
|
|
|
1,035
|
|
|
|
|
|
|
|
|
|
|
|
1,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
20,401
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
20,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The plan assets measured at fair value in Level 1 are based
on quoted market prices in an active exchange market.
The Companys investment goal is to obtain a competitive
risk adjusted return on the Pension Plan assets commensurate
with prudent investment practices and the plans
responsibility to provide retirement benefits for its
participants, retirees and their beneficiaries. The 2010
targeted allocation for equity securities, debt securities and
real estate is 62%, 33% and 5%, respectively. The Pension
Plans investment policy does not explicitly designate
allowable or prohibited investments; instead, it provides
guidance regarding investment diversification and other prudent
investment practices to limit the risk of loss. The Plans
asset allocation targets are strategic and long-term in nature
and are designed to take advantage of the risk reducing impacts
of asset class diversification.
Plan assets are periodically rebalanced to their asset class
targets to reduce risk and to retain the portfolios
strategic risk/return profile. Investments within each asset
category are further diversified with regard to investment style
and concentration of holdings.
Contributions
The Company contributed $928,000 to the Pension Plan for the
year ended December 31, 2010. In 2009, the Company
contributed $1.0 million to the Pension Plan for the year
ending December 31, 2009. The Company plans to contribute
$1.0 million to the Pension Plan in 2011.
101
Rockville
Financial, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
Estimated
Future Benefit Payments
The following benefit payments, which reflect expected future
service, as appropriate, are expected to be paid:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Post-
|
|
|
Pension
|
|
Retirement
|
Years Ending December 31,
|
|
Plans
|
|
Benefits
|
|
|
(In thousands)
|
|
2011
|
|
$
|
4,399
|
|
|
$
|
121
|
|
2012
|
|
|
714
|
|
|
|
129
|
|
2013
|
|
|
756
|
|
|
|
139
|
|
2014
|
|
|
788
|
|
|
|
149
|
|
2015
|
|
|
874
|
|
|
|
159
|
|
Years
2016-2020
|
|
|
5,996
|
|
|
|
864
|
|
401(k) Plan: The Company has a tax-qualified
401(k) plan for the benefit of its eligible employees. Beginning
January 1, 2005, the 401(k) Plan was amended to pay all
employees, even those who do not contribute to the 401(k) Plan,
an automatic 3% of pay safe harbor contribution that
is fully vested to participants of the 401(k) Plan. For
employees hired on or after January 1, 2005, the Company
also will make a discretionary matching contribution equal to a
uniform percentage of the amount of the salary reduction the
employee elected to defer, which percentage will be determined
each year by the Company. The Company contributed $509,000,
$396,000 and $393,000 to the plan for the years ended
December 31, 2010, 2009 and 2008, respectively.
|
|
Note 14.
|
SHARE-BASED
COMPENSATION
|
The Board of Directors and stockholders of the Company approved
the Rockville Financial, Inc. 2006 Stock Incentive Award Plan
(the Plan) in 2006. The Plan allows the Company to
use stock options, stock awards, stock appreciation rights and
performance awards to attract, retain and reward performance of
qualified employees and others who contribute to the success of
the Company. The Plan allowed for the issuance of a maximum of
349,830 restricted stock shares and 874,575 stock options in
connection with Awards under the Plan. As of December 31,
2010, there were 20,157 restricted stock shares and 304,690
stock options that remain available for future grants under the
Plan.
The fair value 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 Company
accelerates the recognition of compensation costs for
share-based awards granted to retirement-eligible employees and
Directors and employees and Directors who become
retirement-eligible prior to full vesting of the award because
the Companys incentive compensation plans allow for full
vesting at the time an employee or Director retires. Share-based
compensation granted to non-retirement-eligible individuals is
expensed over the normal vesting period.
Total employee and Director share-based compensation expense
recognized for stock options and restricted stock was $775,000,
with a related tax benefit recorded of $272,000, for the year
ended December 31, 2010 of which Director share-based
compensation expense recognized (in the consolidated statement
of operations as other non-interest expense) was $311,000 and
officer share-based compensation expense recognized (in the
consolidated statement of operations as salaries and benefits
expense) was $464,000. The total charge of $775,000 includes
$46,000 related to 3,717 vested restricted shares used for
income tax withholding payments on behalf of certain executives.
Total employee and Director share-based compensation expense
recognized for stock options and restricted stock was $827,000,
with a related tax benefit recorded of $285,000, for the year
ended December 31,
102
Rockville
Financial, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
2009 of which Director share-based compensation expense
recognized (in the consolidated statement of operations as other
non-interest expense) was $362,000 and officer share-based
compensation expense recognized (in the consolidated statement
of operations as salaries and benefits expense) was $476,000.
The total charge of $838,000 includes $44,000 related to 4,310
vested restricted shares used for income tax withholding
payments on behalf of certain executives.
Total employee and Director share-based compensation expense
recognized for stock options and restricted stock was
$1,743,000, with a related tax benefit recorded of $593,000, for
the year ended December 31, 2008 of which Director
share-based compensation expense recognized (in the consolidated
statement of operations as other non-interest expense) was
$387,000 and officer share-based compensation expense recognized
(in the consolidated statement of operations as salaries and
benefits expense) was $1,356,000. The total charge of $1,743,000
includes $214,000 related to 17,762 vested restricted shares
used for income tax withholding payments on behalf of certain
executives.
Stock
Options:
The following table presents the activity related to stock
options under the Plan for the year ended December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
Stock
|
|
|
Exercise
|
|
|
Term
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price
|
|
|
(In Years)
|
|
|
Value
|
|
|
Stock options outstanding at December 31, 2009
|
|
|
445,875
|
|
|
$
|
13.18
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
112,010
|
|
|
|
11.25
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options outstanding at December 31, 2010
|
|
|
557,885
|
|
|
$
|
12.80
|
|
|
|
7.3
|
|
|
$
|
514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options vested and exercisable at December 31, 2010
|
|
|
428,977
|
|
|
$
|
13.38
|
|
|
|
7.6
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the unvested Stock Option activity
for the year ended December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Number of
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Unvested as of December 31, 2009
|
|
|
115,635
|
|
|
$
|
3.04
|
|
Granted
|
|
|
112,010
|
|
|
|
4.55
|
|
Vested
|
|
|
(98,737
|
)
|
|
|
3.97
|
|
Forfeited, expired or canceled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested as of December 31, 2010
|
|
|
128,908
|
|
|
$
|
3.64
|
|
|
|
|
|
|
|
|
|
|
The aggregate fair value of options vested was $392,000 and
$264,000 for 2010 and 2009, respectively.
As of December 31, 2010, the unrecognized cost related to
the stock options awarded of $368,000 will be recognized over a
weighted-average period of 2.9 years.
For share-based compensation recognized for the years ended
December 31, 2010, 2009 and 2008, the Company used the
Black-Scholes option pricing model for estimating the fair value
of stock options granted.
103
Rockville
Financial, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
The weighted-average estimated fair values of stock option
grants and the assumptions that were used in calculating such
fair values were based on estimates at the date of grant as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
Weighted per share average fair value of options granted
|
|
$
|
4.55
|
|
|
$
|
3.05
|
|
|
$
|
2.72
|
|
Assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest rate
|
|
|
1.84
|
%
|
|
|
2.23
|
%
|
|
|
3.24
|
%
|
Expected volatility
|
|
|
51.54
|
%
|
|
|
29.85
|
%
|
|
|
22.11
|
%
|
Expected dividend yield
|
|
|
2.31
|
%
|
|
|
2.16
|
%
|
|
|
1.67
|
%
|
Expected life of options granted
|
|
|
6.0 years
|
|
|
|
6.0 years
|
|
|
|
6.0 years
|
|
The expected volatility was determined using both the
Companys historical trading volatility as well as the
historical volatility of an index published by SNL Financial for
mutual holding companys common stock over the expected
average life of the options. The index was used as the
Companys stock has only been publicly traded since
May 23, 2005.
The Company estimates option forfeitures using historical data
on employee terminations.
The expected life of stock options granted represents the period
of time that stock options granted are expected to be
outstanding.
The risk-free interest rate for periods within the contractual
life of the stock option is based on the average five-and
seven-year U.S. Treasury Note yield curve in effect at the
date of grant.
The expected dividend yield reflects an estimate of the
dividends the Company expects to declare over the expected life
of the options granted.
Stock options provide grantees the option to purchase shares of
common stock at a specified exercise price and expire ten years
from the date of grant.
The Company plans to use Treasury stock to satisfy future stock
option exercises.
Additional information regarding stock options outstanding as of
December 31, 2010, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Exercisable Options
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Weighted
|
|
|
|
|
Remaining
|
|
|
|
|
Weighted
|
Average
|
|
|
|
|
Contractual
|
|
|
|
|
Average
|
Exercise
|
|
|
|
|
Life
|
|
|
|
|
Exercise
|
Prices
|
|
Shares
|
|
|
(In Years)
|
|
Shares
|
|
|
Prices
|
|
$9.24
|
|
|
126,250
|
|
|
8.3
|
|
|
81,580
|
|
|
$9.24
|
11.25
|
|
|
112,010
|
|
|
9.9
|
|
|
59,922
|
|
|
11.25
|
11.98
|
|
|
121,125
|
|
|
7.2
|
|
|
94,875
|
|
|
11.98
|
14.35
|
|
|
78,000
|
|
|
6.7
|
|
|
72,100
|
|
|
14.35
|
17.77
|
|
|
120,500
|
|
|
6.0
|
|
|
120,500
|
|
|
17.77
|
Restricted
Stock:
Restricted stock provides grantees with rights to shares of
common stock upon completion of a service period. During the
restriction period, all shares are considered outstanding and
dividends are paid on the restricted stock.
104
Rockville
Financial, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
The following table presents the activity for restricted stock
for the year ended December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Number of
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Unvested as of December 31, 2009
|
|
|
41,695
|
|
|
$
|
13.47
|
|
Granted
|
|
|
11,144
|
|
|
|
11.25
|
|
Vested
|
|
|
(25,189
|
)
|
|
|
15.17
|
|
Forfeited, expired or canceled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested as of December 31, 2010
|
|
|
27,650
|
|
|
$
|
11.03
|
|
|
|
|
|
|
|
|
|
|
The fair value of restricted shares that vested during the years
ended December 31, 2010, 2009 and 2008 was $382,000,
$494,000 and $1.1 million, respectively. The
weighted-average grant date fair value of restricted stock
granted during the year ended December 31, 2010 was $11.25
and for the year ended December 31, 2009 was $9.24 and for
the year ended December 31, 2008 was $11.98.
As of December 31, 2010, there was $219,000 of total
unrecognized compensation cost related to unvested restricted
stock which is expected to be recognized over a weighted-average
period of 2.6 years.
Of the remaining unvested restricted stock, 10,300 shares
will vest in 2011, 10,300 shares in 2012, 4,700 shares
will vest in 2013 and 2,350 shares will vest in 2014. All
unvested restricted stock shares are expected to vest.
Employee Stock Ownership Plan: As part of the
reorganization and stock offering completed in 2005, the Company
established an ESOP for eligible employees of the Bank, and
authorized the Company to lend the funds to the ESOP to purchase
699,659 or 3.6% of the shares issued in the initial public
offering. Upon completion of the reorganization, the ESOP
borrowed $4.4 million from the Company to purchase
437,287 shares of common stock. Additional shares of 59,300
and 203,072 were subsequently purchased by the ESOP in the open
market at a total cost of $817,000 and $2.7 million in 2006 and
2005, respectively, with additional funds borrowed from the
Company. The Bank intends to make annual contributions to the
ESOP that will be adequate to fund the payment of regular debt
service requirements attributable to the indebtedness of the
ESOP. The interest rate for the ESOP loan is the prime rate plus
one percent, or 4.25% as of December 31, 2010. As the loan
is repaid to the Company, shares will be released from
collateral and will be allocated to the accounts of the
participants. As of December 31, 2010, the outstanding
principal and interest due was $3.6 million and principal
payments of $4.2 million have been made on the loan since
inception. Dividends paid in 2010 totaling $86,000 on
unallocated ESOP shares were offset to the interest payable on
the note owed by the Company.
As of December 31, 2010, there were 216 participants
receiving an ESOP allocation with an aggregate eligible
compensation of $11.9 million. The shares were allocated
among the participants in proportion to each individuals
compensation as a percentage of the total aggregate
compensation. Compensation was capped at $245,000 for 2010, as
prescribed by law. The 2011 compensation cap is $245,000.
ESOP expense was $803,000, $928,000 and $912,000 for the years
ended December 31, 2010, 2009 and 2008, respectively. At
December 31, 2010, there were 419,795 allocated and 279,864
unallocated ESOP shares and the unallocated shares had an
aggregate fair value of $3.4 million.
105
Rockville
Financial, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
The components of the income tax expense (benefit) for the years
ended December 31, 2010, 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Current
|
|
$
|
7,406
|
|
|
$
|
6,177
|
|
|
$
|
4,572
|
|
Deferred
|
|
|
(674
|
)
|
|
|
(1,242
|
)
|
|
|
(5,528
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense (benefit)
|
|
$
|
6,732
|
|
|
$
|
4,935
|
|
|
$
|
(956
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The tax effects of temporary differences that give rise to
deferred tax assets and deferred tax liabilities at
December 31, 2010 and 2009 are presented below:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
$
|
5,009
|
|
|
$
|
4,389
|
|
Investment security losses
|
|
|
4,939
|
|
|
|
5,127
|
|
Pension, deferred compensation and post-retirement liabilities
|
|
|
2,719
|
|
|
|
2,433
|
|
Stock incentive award plan
|
|
|
575
|
|
|
|
471
|
|
Other
|
|
|
563
|
|
|
|
606
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
13,805
|
|
|
|
13,026
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Unrealized gains on securities
|
|
|
(2,172
|
)
|
|
|
(2,129
|
)
|
Other
|
|
|
(306
|
)
|
|
|
(289
|
)
|
|
|
|
|
|
|
|
|
|
Gross deferred tax liabilities
|
|
|
(2,478
|
)
|
|
|
(2,418
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
11,327
|
|
|
$
|
10,608
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010, management believes it is more
likely than not that the deferred tax assets will be realized
through future earnings and future reversals of existing taxable
temporary differences. As of December 31, 2010 and 2009,
our net deferred tax asset was $11.3 million and
$10.6 million, respectively, and there was no valuation
allowance.
Retained earnings at December 31, 2010 includes a
contingency reserve for loan losses of approximately
$1.2 million, which represents the tax reserve balance
existing at December 31, 1987, and is maintained in
accordance with provisions of the Internal Revenue Code
applicable to mutual savings banks. Amounts transferred to the
reserve have been claimed as deductions from taxable income,
and, if the reserve is used for purposes other than to absorb
losses on loans, a Federal income tax liability could be
incurred. It is not anticipated that the Company will incur a
Federal income tax liability relating to this reserve balance,
and accordingly, deferred income taxes of approximately $408,000
at December 31, 2010 have not been recognized.
As of December 31, 2010 and December 31, 2009, there
were no material uncertain tax positions related to federal and
state income tax matters. The Company records interest and
penalties as part of income tax expense. No interest or
penalties were recorded for the years ended December 31,
2010, 2009 and 2008. The Company is currently open to audit
under the statute of limitations by the Internal Revenue Service
and state taxing authorities for the years ended
December 31, 2007 through 2010.
106
Rockville
Financial, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
For the years ended December 31, 2010, 2009 and 2008, a
reconciliation of the anticipated income tax provision (benefit)
(computed by applying the Federal statutory income tax rate of
35% for the year ended December 31, 2010 and 34% for the
years ended December 31, 2009 and 2008. to income (loss)
before income tax expense), to the provision (benefit) for
income taxes as reported in the statements of operations is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Provision for income tax at statutory rate
|
|
$
|
6,644
|
|
|
$
|
4,986
|
|
|
$
|
(865
|
)
|
Increase (decrease) resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
State income taxes
|
|
|
136
|
|
|
|
|
|
|
|
|
|
Increase in cash surrender value of bank-owned Life Insurance
|
|
|
(134
|
)
|
|
|
(126
|
)
|
|
|
(130
|
)
|
Dividend received deduction
|
|
|
(89
|
)
|
|
|
(76
|
)
|
|
|
(234
|
)
|
Tax exempt interest and disallowed interest expense
|
|
|
(5
|
)
|
|
|
(11
|
)
|
|
|
(16
|
)
|
Excess book basis of Employee Stock Ownership Plan
|
|
|
14
|
|
|
|
40
|
|
|
|
42
|
|
Compensation deduction limit
|
|
|
|
|
|
|
|
|
|
|
243
|
|
Other, net
|
|
|
166
|
|
|
|
122
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision (benefit) for income taxes
|
|
$
|
6,732
|
|
|
$
|
4,935
|
|
|
$
|
(956
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 16.
|
COMMITMENTS
AND CONTINGENCIES
|
Leases: The Company leases certain of its
branch offices under operating lease agreements which contain
renewal options for periods up to twenty years. In addition to
rental payments, the branch leases require payments for
executory costs. The Company also leases certain equipment under
non-cancelable operating leases.
Future minimum rental commitments under the terms of these
leases, by year and in the aggregate, are as follows as of
December 31, 2010:
|
|
|
|
|
|
|
(In thousands)
|
|
|
2011
|
|
$
|
791
|
|
2012
|
|
|
759
|
|
2013
|
|
|
740
|
|
2014
|
|
|
673
|
|
2015
|
|
|
664
|
|
Thereafter
|
|
|
9,437
|
|
|
|
|
|
|
|
|
$
|
13,064
|
|
|
|
|
|
|
Total rental expense charged to operations for all cancelable
and non-cancelable operating leases was $1.0 million,
$999,000 and $983,000 for the years ended December 31,
2010, 2009 and 2008, respectively.
107
Rockville
Financial, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
The Company, as a landlord, leases space to third party tenants
under non-cancelable operating leases. In addition to base rent,
the leases require payments for executory costs. Future minimum
rental receivable under the non-cancelable leases are as follows
as of December 31, 2010:
|
|
|
|
|
|
|
(In thousands)
|
|
|
2011
|
|
$
|
327
|
|
2012
|
|
|
318
|
|
2013
|
|
|
318
|
|
2014
|
|
|
318
|
|
2015
|
|
|
318
|
|
Thereafter
|
|
|
210
|
|
|
|
|
|
|
|
|
$
|
1,809
|
|
|
|
|
|
|
Rental income is recorded as a reduction to occupancy and
equipment expense and amounted to $353,000, $327,000 and
$320,000 for the years ended December 31, 2010, 2009 and
2008, respectively.
Employment and Change in Control
Agreements: In 2010, the Bank and the
Company amended and restated the employment agreements and
change in control agreements for the executive officers
effective January 1, 2011. The Bank and the Company also
entered into an employment and change of control agreement with
its future chief executive officer effective January 3,
2011 who will replace Mr. McGurk in April 2010. Each
employment and change in control agreement has an initial term
of one year which is automatically extended on each
January 1st for one additional year unless written
notice is given by either party; provided, however, that no such
notice by the Bank or the Company will be effective if a change
of control or potential change in control has occurred prior to
the date of such notice. Also, on January 26, 2011, the
Bank entered into an agreement with its president to retain him
in an advisory capacity for two years following his retirement
in April 2011.
Under certain specified circumstances, the employment agreements
require certain payments to be made for certain reasons other
than cause, including a change in control as defined
in the agreement. However, such employment may be terminated for
cause, as defined, without incurring any continuing obligations.
If the Bank chooses to terminate these employment agreements for
reasons other than cause, or if the officer resigns from the
Bank after specified circumstances that would constitute good
reason, as defined in the employment agreement, the officer
would be entitled to receive a severance benefit in the amount
of three times the sum of his or her base salary and his or her
potential annual incentive compensation for the year of
termination or, if higher, his or her actual annual incentive
compensation for the year prior to the year of termination,
payable in monthly installments over the employment agreement
renewal period following termination. In addition, the officer
will be entitled to a pro-rata portion of the annual incentive
compensation potentially payable to them for the year of
termination; accelerated vesting of any outstanding stock
options, restricted stock or other stock awards; immediate
exercisability of any such options; and deemed satisfaction of
any performance-based objectives under any stock plan or other
long-term incentive award. In consideration for the compensation
and benefits provided under their employment agreement, the
officers are prohibited from competing with the Bank and the
Company during the term of the employment agreements and for a
period of two years following termination of employment for any
reason.
Change in Control Severance Plan: The Bank and
the Company adopted a Change in Control Severance Plan to
provide benefits to eligible employees upon a change in control
of the Bank or the Company. Eligible employees are those with a
minimum of one year of service with the Bank as of the date of
the change in control. Generally, all eligible employees, other
than officers who will enter into separate employment or change
in control or change in control and restrictive covenant
agreements with the Bank and the Company, will be eligible to
participate in the plan. Under the plan, if a change in control
of the Bank or the Company
108
Rockville
Financial, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
occurs, eligible employees who are terminated, or who terminate
employment upon the occurrence of events specified in the plan,
within 24 months of the effective date of the change in
control, will be entitled to 1/26th of the sum of the
employees annual base salary and his or her potential
annual incentive compensation for the year of termination or, if
higher, his or her actual annual incentive compensation for the
year prior to the year of termination, multiplied by the
employees total years of service with the Bank. Subsidized
COBRA coverage will also be made available to such employees for
a period of weeks equal to the employees years of service
with the Bank multiplied by two.
Legal Matters: The Company is involved in
various legal proceedings which have arisen in the normal course
of business. Management believes that resolution of these
matters will not have a material effect on the Companys
financial condition, results of operations or cash flows.
Financial Instruments With Off-Balance Sheet
Risk: In the normal course of business, the
Company is a party to financial instruments with off-balance
sheet risk to meet the financing needs of its customers. These
financial instruments include commitments to extend credit and
undisbursed portions of construction loans and involve, to
varying degrees, elements of credit and interest rate risk in
excess of the amounts recognized in the statements of financial
condition. The contractual amounts of those instruments reflect
the extent of involvement the Company has in particular classes
of financial instruments.
The contractual amounts of commitments to extend credit
represent the amounts of potential accounting loss should the
contract be fully drawn upon, the customer default 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 December 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Commitments to extend credit:
|
|
|
|
|
|
|
|
|
Future loan commitments
|
|
$
|
68,993
|
|
|
$
|
36,650
|
|
Undisbursed construction loans
|
|
|
87,544
|
|
|
|
86,492
|
|
Undisbursed home equity lines of credit
|
|
|
143,904
|
|
|
|
125,511
|
|
Undisbursed commercial lines of credit
|
|
|
60,587
|
|
|
|
57,713
|
|
Standby letters of credit
|
|
|
10,368
|
|
|
|
10,555
|
|
Unused checking overdraft lines of credit
|
|
|
94
|
|
|
|
94
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
371,490
|
|
|
$
|
317,015
|
|
|
|
|
|
|
|
|
|
|
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 customers 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
managements 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.
|
|
Note 17.
|
REGULATORY
MATTERS
|
The Company and the Bank are subject to various regulatory
capital requirements administered by the Federal banking
agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and
109
Rockville
Financial, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
possibly additional discretionary, actions by regulators that,
if undertaken, could have a direct material effect on the
Companys financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective
action, the Company and the Bank must meet specific capital
guidelines that involve quantitative measures of the
Companys and the Banks assets, liabilities, and
certain off-balance sheet items, as calculated under regulatory
accounting practices. The Companys and the Banks
capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure
capital adequacy require the Company and Bank to maintain
minimum amounts and ratios (set forth in the table below) of
total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital
(as defined) to average assets (as defined). Management
believes, as of December 31, 2010 and 2009 that the Company
and the Bank met all capital adequacy requirements to which they
are subject.
As of December 31, 2010, the most recent notification from
the FDIC categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be
categorized as well capitalized, the Bank must maintain minimum
total risk-based, Tier I risk-based, and Tier I
leverage ratios as set forth in the table below. There are no
conditions or events since then that management believes have
changed the Banks category. Prompt corrective provisions
are not applicable to bank holding companies.
The following is a summary of the Banks regulatory capital
amounts and ratios as of December 31, 2010 and 2009
compared to the FDICs requirements for classification as a
well capitalized institution and for minimum capital adequacy.
Also included is a summary of Rockville Financial, Inc.s
regulatory capital and ratios as of December 31, 2010 and
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
|
|
|
|
|
|
|
To Be Well
|
|
|
|
|
Required
|
|
Capitalized Under
|
|
|
|
|
Minimum
|
|
Prompt Corrective
|
|
|
Actual
|
|
Ratios
|
|
Action Provisions
|
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
|
(Dollars in thousands)
|
|
Rockville Bank:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital to risk weighted assets
|
|
$
|
167,793
|
|
|
|
12.7
|
%
|
|
$
|
105,530
|
|
|
|
8.0
|
%
|
|
$
|
131,913
|
|
|
|
10.0
|
%
|
Tier I capital to risk-weighted assets
|
|
|
153,090
|
|
|
|
11.6
|
|
|
|
52,744
|
|
|
|
4.0
|
|
|
|
79,116
|
|
|
|
6.0
|
|
Tier I capital to adjusted total average assets
|
|
|
153,090
|
|
|
|
9.1
|
|
|
|
67,515
|
|
|
|
4.0
|
|
|
|
84,394
|
|
|
|
5.0
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital to risk weighted assets
|
|
$
|
158,870
|
|
|
|
13.1
|
%
|
|
$
|
96,976
|
|
|
|
8.0
|
%
|
|
$
|
121,220
|
|
|
|
10.0
|
%
|
Tier I capital to risk-weighted assets
|
|
|
145,654
|
|
|
|
12.0
|
|
|
|
48,488
|
|
|
|
4.0
|
|
|
|
72,732
|
|
|
|
6.0
|
|
Tier I capital to adjusted total average assets
|
|
|
145,654
|
|
|
|
9.3
|
|
|
|
62,478
|
|
|
|
4.0
|
|
|
|
78,097
|
|
|
|
5.0
|
|
Rockville Financial, Inc:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital to risk weighted assets
|
|
$
|
181,178
|
|
|
|
13.7
|
%
|
|
$
|
105,566
|
|
|
|
8.0
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Tier I capital to risk-weighted assets
|
|
|
166,475
|
|
|
|
12.6
|
|
|
$
|
52,765
|
|
|
|
4.0
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Tier I capital to adjusted total average assets
|
|
|
166,475
|
|
|
|
10.4
|
|
|
$
|
64,090
|
|
|
|
4.0
|
|
|
|
N/A
|
|
|
|
N/A
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital to risk weighted assets
|
|
$
|
170,559
|
|
|
|
14.1
|
%
|
|
$
|
96,976
|
|
|
|
8.0
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Tier I capital to risk-weighted assets
|
|
|
157,343
|
|
|
|
13.0
|
|
|
|
48,489
|
|
|
|
4.0
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Tier I capital to adjusted total average assets
|
|
|
157,343
|
|
|
|
10.1
|
|
|
|
62,028
|
|
|
|
4.0
|
|
|
|
N/A
|
|
|
|
N/A
|
|
110
Rockville
Financial, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
Connecticut law restricts the amount of dividends that the Bank
can pay based on retained earnings for the current year and the
preceding two years. As of December 31, 2010,
$20.4 million was available for the payment of dividends.
|
|
Note 18.
|
ACCUMULATED
OTHER COMPREHENSIVE (LOSS) INCOME
|
Components of accumulated other comprehensive (loss) income, net
of taxes, consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Adjustment
|
|
|
|
|
|
|
|
|
|
Gains on
|
|
|
of a
|
|
|
Accumulated
|
|
|
|
Minimum
|
|
|
Available-
|
|
|
Change in
|
|
|
Other
|
|
|
|
Pension
|
|
|
for Sale
|
|
|
Accounting
|
|
|
Comprehensive
|
|
|
|
Liability
|
|
|
Securities
|
|
|
Principle(1)
|
|
|
Loss
|
|
|
|
(In thousands)
|
|
|
December 31, 2007
|
|
$
|
(3,430
|
)
|
|
$
|
3,189
|
|
|
$
|
|
|
|
$
|
(241
|
)
|
Change
|
|
|
(4,272
|
)
|
|
|
420
|
|
|
|
|
|
|
|
(3,852
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
(7,702
|
)
|
|
|
3,609
|
|
|
|
|
|
|
|
(4,093
|
)
|
Change
|
|
|
2,653
|
|
|
|
1,441
|
|
|
|
(1,034
|
)
|
|
|
3,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
(5,049
|
)
|
|
|
5,050
|
|
|
|
(1,034
|
)
|
|
|
(1,033
|
)
|
Change
|
|
|
(266
|
)
|
|
|
17
|
|
|
|
|
|
|
|
(249
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
$
|
(5,315
|
)
|
|
$
|
5,067
|
|
|
$
|
(1,034
|
)
|
|
$
|
(1,282
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The effect of the adoption of FASB Staff Position
FAS 115-2
(ASC 320) |
The following table summarizes other comprehensive income (loss)
and the related tax effects:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Net income (loss) as reported
|
|
$
|
12,251
|
|
|
$
|
9,732
|
|
|
$
|
(1,587
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on securities available for sale
|
|
|
118
|
|
|
|
2,184
|
|
|
|
637
|
|
Income tax expense
|
|
|
(101
|
)
|
|
|
(743
|
)
|
|
|
(217
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain on securities available for sale
|
|
|
17
|
|
|
|
1,441
|
|
|
|
420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit plans amortization
|
|
|
(412
|
)
|
|
|
4,019
|
|
|
|
(6,474
|
)
|
Income tax (expense) benefit
|
|
|
146
|
|
|
|
(1,366
|
)
|
|
|
2,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net benefit plans amortization
|
|
|
(266
|
)
|
|
|
2,653
|
|
|
|
(4,272
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income, net of tax
|
|
|
(249
|
)
|
|
|
4,094
|
|
|
|
(3,852
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
$
|
12,002
|
|
|
$
|
13,826
|
|
|
$
|
(5,439
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111
Rockville
Financial, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
|
|
Note 19.
|
PARENT
COMPANY FINANCIAL INFORMATION
|
The following represents the Companys condensed statements
of condition as of December 31, 2010 and 2009 and condensed
statements of operations and cash flows for the years ended
December 31, 2010 , 2009 and 2008 which should be read in
conjunction with the consolidated financial statements and
related notes:
Condensed
Statements of Condition
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
5,477
|
|
|
$
|
5,129
|
|
Accrued interest receivable
|
|
|
1
|
|
|
|
1
|
|
Deferred tax
asset-net
|
|
|
32
|
|
|
|
23
|
|
Investment in Rockville Bank
|
|
|
153,043
|
|
|
|
145,739
|
|
Due from Rockville Bank
|
|
|
5,668
|
|
|
|
5,002
|
|
Other assets
|
|
|
2,431
|
|
|
|
1,724
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
166,652
|
|
|
$
|
157,618
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity:
|
|
|
|
|
|
|
|
|
Accrued expenses and other liabilities
|
|
$
|
224
|
|
|
$
|
190
|
|
Stockholders equity
|
|
|
166,428
|
|
|
|
157,428
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity
|
|
$
|
166,652
|
|
|
$
|
157,618
|
|
|
|
|
|
|
|
|
|
|
Condensed
Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Interest and dividend income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on investments
|
|
$
|
16
|
|
|
$
|
46
|
|
|
$
|
224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
16
|
|
|
|
46
|
|
|
|
224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income
|
|
|
123
|
|
|
|
|
|
|
|
|
|
Non-interest expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
519
|
|
|
|
512
|
|
|
|
568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense
|
|
|
519
|
|
|
|
512
|
|
|
|
568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before tax benefit and equity in undistributed net income
(loss) of Rockville Bank
|
|
|
(380
|
)
|
|
|
(466
|
)
|
|
|
(344
|
)
|
Income tax benefit
|
|
|
78
|
|
|
|
157
|
|
|
|
116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before equity in undistributed net income (loss) of
Rockville Bank
|
|
|
(302
|
)
|
|
|
(309
|
)
|
|
|
(228
|
)
|
Equity in undistributed net income (loss) of Rockville Bank
|
|
|
12,553
|
|
|
|
10,041
|
|
|
|
(1,359
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
12,251
|
|
|
$
|
9,732
|
|
|
$
|
(1,587
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
112
Rockville
Financial, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
Condensed
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
12,251
|
|
|
$
|
9,732
|
|
|
$
|
(1,587
|
)
|
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation and ESOP expense
|
|
|
1,578
|
|
|
|
1,755
|
|
|
|
2,655
|
|
Undistributed (income) loss of Rockville Bank
|
|
|
(12,553
|
)
|
|
|
(10,041
|
)
|
|
|
1,359
|
|
Deferred tax (provision) benefit
|
|
|
(9
|
)
|
|
|
(5
|
)
|
|
|
289
|
|
Net change in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest receivable
|
|
|
|
|
|
|
4
|
|
|
|
13
|
|
Due from Rockville Bank
|
|
|
(666
|
)
|
|
|
(704
|
)
|
|
|
(1,457
|
)
|
Other assets
|
|
|
(707
|
)
|
|
|
910
|
|
|
|
594
|
|
Accrued expenses and other liabilities
|
|
|
34
|
|
|
|
22
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(72
|
)
|
|
|
1,673
|
|
|
|
1,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend from Rockville Bank
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
Capital investment in Rockville Bank
|
|
|
|
|
|
|
|
|
|
|
(10,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
5,000
|
|
|
|
|
|
|
|
(10,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of common stock
|
|
|
|
|
|
|
(198
|
)
|
|
|
(4,119
|
)
|
Cancellation of shares for tax withholding
|
|
|
(46
|
)
|
|
|
(44
|
)
|
|
|
|
|
Cash dividends paid on common stock
|
|
|
(4,534
|
)
|
|
|
(3,688
|
)
|
|
|
(3,691
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(4,580
|
)
|
|
|
(3,930
|
)
|
|
|
(7,810
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
348
|
|
|
|
(2,257
|
)
|
|
|
(15,899
|
)
|
Cash and cash equivalents beginning of year
|
|
|
5,129
|
|
|
|
7,386
|
|
|
|
23,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of year
|
|
$
|
5,477
|
|
|
$
|
5,129
|
|
|
$
|
7,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
9,600
|
|
|
$
|
4,401
|
|
|
$
|
1,751
|
|
As of December 31, 2010 and 2009, the Company had not
engaged in any business activities other than owning the common
stock of Rockville Bank.
113
Rockville
Financial, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
|
|
Note 20.
|
SELECTED
QUARTERLY CONSOLIDATED INFORMATION
(UNAUDITED):
|
The following table presents quarterly financial information of
the Company for the years ended December 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
June 30,
|
|
|
March 31,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
|
(In thousands, except per share data)
|
|
|
Interest and dividend income
|
|
$
|
19,069
|
|
|
$
|
19,069
|
|
|
$
|
18,620
|
|
|
$
|
18,941
|
|
|
$
|
18,940
|
|
|
$
|
18,684
|
|
|
$
|
19,114
|
|
|
$
|
19,324
|
|
Interest expense
|
|
|
5,641
|
|
|
|
5,516
|
|
|
|
5,461
|
|
|
|
5,543
|
|
|
|
6,517
|
|
|
|
7,384
|
|
|
|
7,813
|
|
|
|
8,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
13,428
|
|
|
|
13,553
|
|
|
|
13,159
|
|
|
|
13,398
|
|
|
|
12,423
|
|
|
|
11,300
|
|
|
|
11,301
|
|
|
|
11,263
|
|
Provision for loan losses
|
|
|
995
|
|
|
|
1,302
|
|
|
|
909
|
|
|
|
903
|
|
|
|
658
|
|
|
|
700
|
|
|
|
304
|
|
|
|
299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
12,433
|
|
|
|
12,251
|
|
|
|
12,250
|
|
|
|
12,495
|
|
|
|
11,765
|
|
|
|
10,600
|
|
|
|
10,997
|
|
|
|
10,964
|
|
Non-interest income(1)
|
|
|
2,606
|
|
|
|
2,746
|
|
|
|
2,365
|
|
|
|
1,687
|
|
|
|
1,590
|
|
|
|
1,809
|
|
|
|
2,582
|
|
|
|
991
|
|
Non-interest expense(2)
|
|
|
10,947
|
|
|
|
9,876
|
|
|
|
9,392
|
|
|
|
9,635
|
|
|
|
8,970
|
|
|
|
8,842
|
|
|
|
9,715
|
|
|
|
9,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
4,092
|
|
|
|
5,121
|
|
|
|
5,223
|
|
|
|
4,547
|
|
|
|
4,385
|
|
|
|
3,567
|
|
|
|
3,864
|
|
|
|
2,851
|
|
Provision for income taxes
|
|
|
1,418
|
|
|
|
1,862
|
|
|
|
1,759
|
|
|
|
1,693
|
|
|
|
1,503
|
|
|
|
1,227
|
|
|
|
1,270
|
|
|
|
935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,674
|
|
|
$
|
3,259
|
|
|
$
|
3,464
|
|
|
$
|
2,854
|
|
|
$
|
2,882
|
|
|
$
|
2,340
|
|
|
$
|
2,594
|
|
|
$
|
1,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per share
|
|
$
|
0.14
|
|
|
$
|
0.18
|
|
|
$
|
0.19
|
|
|
$
|
0.15
|
|
|
$
|
0.16
|
|
|
$
|
0.13
|
|
|
$
|
0.14
|
|
|
$
|
0.10
|
|
Stock price (per share):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
12.47
|
|
|
$
|
12.91
|
|
|
$
|
12.64
|
|
|
$
|
12.42
|
|
|
$
|
11.68
|
|
|
$
|
14.79
|
|
|
$
|
12.50
|
|
|
$
|
14.46
|
|
Low
|
|
$
|
10.50
|
|
|
$
|
11.06
|
|
|
$
|
10.50
|
|
|
$
|
8.82
|
|
|
$
|
9.68
|
|
|
$
|
9.88
|
|
|
$
|
8.44
|
|
|
$
|
6.17
|
|
|
|
|
(1) |
|
In the first quarter of 2009, non-interest income included
other-than-temporary
impairment charges of $65,000 related to one mutual fund and
$292,000 related to three equity securities. No material charges
were taken in the remainder of 2009. There were no
other-than-temporary
charges taken in 2010. Refer to Note 7
Investment Securities for additional information on
other-than-temporary
impairments. In 2010, quarterly gains of loans held for sale
were $159,000, $364,000, $669,000 and $554,000 for the first
quarter through the fourth quarter, respectively. In the second
quarter of 2009, the Company recorded $867,000 of security gains
and $289,000 of gains on the sale of
one-to-four
family fixed rate residential loans. |
|
(2) |
|
In the fourth quarter of 2010, increases in salaries and
benefits expense of $495,000 due to additional bonus option and
restricted stock expense , professional fees of $293,000, due to
regulatory compliance reviews and marketing and promotions
expense of $285,000 resulting from additional marketing
promotions were noted over the prior quarter. |
|
|
Note 21.
|
Second
Step Conversion
|
The respective Boards of Directors of Rockville Financial MHC,
Inc., Rockville Financial, Inc. and Rockville Bank adopted a
plan of conversion on September 16, 2010. Pursuant to the
terms of the plan of conversion, Rockville Financial MHC, Inc.
converts from a partially public mutual holding company
structure to a fully public stock holding company structure. The
transactions of the Plan of Conversion were approved by
Rockville Financial, Inc.s shareholders, the corporators
of the Rockville Financial MHC, Inc. and the Federal Deposit
Insurance Corporation.
114
Rockville
Financial, Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
On March 3, 2011, Rockville Financial, Inc. completed its
stock offering in connection with the second step conversion of
Rockville Financial MHC, Inc. As part of the conversion, New
Rockville Financial, Inc. succeeded Rockville Financial, Inc as
the stock holding company of Rockville Bank, and Rockville
Financial MHC, Inc. was dissolved. In the stock offering, a
total of 10,689,250 shares representing Rockville Financial
MHC, Incs ownership interest in Rockville Financial were
sold by New Rockville Financial, Inc. in a subscription
offering. In addition, each outstanding share of Rockville
Financial, Inc. as of March 3, 2011 was exchanged for
1.5167 shares of New Rockville Financial, Inc. common
stock. New Rockville Financial, Inc. changed its name to
Rockville Financial, Inc. effective March 3, 2011. A total
of $171.1 million, net of offering costs of
3.0 million, was raised as of March 3, 2011.
115
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
There were no changes in or disagreements with accountants on
accounting and financial disclosure as defined in Item 304
of
Regulation S-K.
|
|
Item 9A.
|
Controls
and Procedures
|
Conclusion
Regarding the Effectiveness of Disclosure Controls and
Procedures:
Under the supervision and with the participation of our
management, including our Chief Executive Officer and our Chief
Financial Officer, we conducted an evaluation of our disclosure
controls and procedures, as such term is defined under Exchange
Act Rule
13a-15(e).
Based on this evaluation, our Chief Executive Officer and our
Chief Financial Officer concluded that our disclosure controls
and procedures were effective as of the end of the period
covered by this annual report.
Managements
Report on Internal Control Over Financial Reporting:
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting. The
Companys internal control over financial reporting is
designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles.
Our internal control over financial reporting includes those
policies and procedures that:
|
|
|
|
|
Pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company;
|
|
|
|
Provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with accounting principles generally accepted in the
United States of America, and that our receipts and expenditures
are being made only in accordance with authorizations of the
Companys management and Directors; and
|
|
|
|
Provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of our
assets that could have a material effect on our financial
statements.
|
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Companys
internal control over financial reporting as of
December 31, 2010. In making this assessment, management
used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal
Control-Integrated Framework. Based on managements
assessment and those criteria, management believes that the
Company maintained effective internal control over financial
reporting as of December 31, 2010.
The Companys independent registered public accounting firm
has audited and issued a report on the Companys internal
control over financial reporting, which appears on page 67.
|
|
Item 9B.
|
Other
Information
|
Not applicable.
116
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
The information required by this Item is incorporated into this
Form 10-K
by reference to the Companys definitive proxy statement
(the Definitive Proxy Statement) for its 2011 Annual
Meeting of Shareholders, to be filed within 120 days
following December 31, 2010.
|
|
Item 11.
|
Executive
Compensation
|
The information required by this Item is incorporated into this
Form 10-K
by reference to the Companys definitive proxy statement
(the Definitive Proxy Statement) for its 2011 Annual
Meeting of Shareholders, to be filed within 120 days
following December 31, 2010.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information required by this Item is incorporated into this
Form 10-K
by reference to the Companys definitive proxy statement
(the Definitive Proxy Statement) for its 2011 Annual
Meeting of Shareholders, to be filed within 120 days
following December 31, 2010.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information required by this Item is incorporated into this
Form 10-K
by reference to the Companys definitive proxy statement
(the Definitive Proxy Statement) for its 2011 Annual
Meeting of Shareholders, to be filed within 120 days
following December 31, 2010.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
The information required by this Item is incorporated into this
Form 10-K
by reference to the Companys definitive proxy statement
(the Definitive Proxy Statement) for its 2011 Annual
Meeting of Shareholders, to be filed within 120 days
following December 31, 2010.
Part IV
|
|
Item 15.
|
Exhibits,
Financial Statements and Financial Statement
Schedules
|
a) The consolidated financial statements, including notes
thereto, and financial schedules required in response to this
item are set forth in Part II, Item 8 of this Form
10-K, and
can be found on the following pages:
2. Financial Statement Schedules
Schedules to the consolidated financial statements required by
Article 9 of
Regulation S-X
and all other schedules to the consolidated financial statements
have been omitted because they are either not required, are
117
not applicable or are included in the consolidated financial
statements or notes thereto, which can be found in this report
in Part II, Item 8.
|
|
|
|
|
|
2
|
.1
|
|
Amended and Restated Plan of Conversion and Reorganization
(incorporated herein by reference to Exhibit 2.1 to the
Registration Statement filed on the
Form S-1
for Rockville Financial New, Inc. on September 16, 2010)
|
|
3
|
.1
|
|
Certificate of Incorporation of Rockville Financial New, Inc.
(incorporated herein by reference to Exhibit 3.1 to the
Registration Statement on the
Form S-1
filed for Rockville Financial New, Inc. on September 16,
2010)
|
|
3
|
.1.1
|
|
Amendment of Certificate of Incorporation of Rockville Financial
New, Inc. (incorporated herein by reference to
Exhibit 3.1.1 to the Registration Statement on the
Form S-1
filed for Rockville Financial New, Inc. on September 16,
2010)
|
|
3
|
.2
|
|
Bylaws of Rockville Financial New, Inc. (incorporated herein by
reference to Exhibit 3.2 to the Registration Statement on
the
Form S-1
filed for Rockville Financial New, Inc. on September 16,
2010)
|
|
4
|
.1
|
|
Form of Common Stock Certificate of Rockville Financial New,
Inc. (incorporated herein by reference to Exhibit 4.1 to
the Registration Statement on the
Form S-1
filed for Rockville Financial New, Inc. on September 16,
2010)
|
|
10
|
.1
|
|
Employment Agreement as amended and restated by and among
Rockville Financial, Inc., Rockville Bank and William J.
McGurk, effective January 1, 2009 (incorporated by
reference to Exhibit 10.1 to the Companys Annual
Report on
Form 10-K
for the year ended December 31, 2008 filed on
March 11, 2009)
|
|
10
|
.1.1
|
|
Rockville Bank Extension Notice Agreement by and among Rockville
Financial, Inc., Rockville Bank and William J. McGurk, effective
January 1, 2010 (incorporated by reference to
Exhibit 10.1.1 to the Companys Annual Report on
Form 10-K
for the year ended December 31, 2009 filed on
March 10, 2010)
|
|
10
|
.1.2
|
|
Advisory Agreement entered into by and between Rockville Bank
and William J. McGurk (incorporated herein by reference to
Exhibit 10.1 to the Current Report on the Companys
Form 8-K
filed on January 26, 2011)
|
|
10
|
.2
|
|
Employment Agreement as amended and restated by and among
Rockville Financial, Inc., Rockville Bank and Joseph F.
Jeamel, Jr., effective January 1, 2009 (incorporated by
reference to Exhibit 10.2 to the Companys Annual
Report on
Form 10-K
for the year ended December 31, 2008 filed on
March 11, 2009)
|
|
10
|
.2.1
|
|
Rockville Bank Extension Notice Agreement by and among Rockville
Financial, Inc., Rockville Bank and Joseph F. Jeamel, Jr.,
effective January 1, 2010 (incorporated by reference to
Exhibit 10.2.1 to the Companys Annual Report on
Form 10-K
for the year ended December 31, 2009 filed on
March 10, 2010)
|
|
10
|
.3
|
|
Employment Agreement by and among Rockville Financial, Inc.,
Rockville Bank and John T. Lund, effective January 4, 2010
(incorporated herein by reference to Exhibit 3.1 to the
Current Report on the Companys
Form 8-K
filed on January 7, 2010)
|
|
10
|
.3.1.
|
|
Supplemental Executive Retirement Agreement of Rockville Bank by
and among John T. Lund effective December 6, 2010 filed
herewith
|
|
10
|
.3.2
|
|
Employment Agreement as amended and restated by and among
Rockville Financial, Inc., Rockville Bank and John L. Lund,
effective January 1, 2011 (incorporated herein by reference
to Exhibit 10.15 to the Current Report on the
Companys
Form 8-K
filed on January 10, 2011)
|
|
10
|
.4
|
|
Employment Agreement as amended and restated by and among
Rockville Financial, Inc., Rockville Bank and Christopher
E. Buchholz, effective January 1, 2009 (incorporated by
reference to Exhibit 10.4 to the Companys Annual
Report on
Form 10-K
for the year ended December 31, 2008 filed on
March 11, 2009)
|
|
10
|
.4.1
|
|
Rockville Bank Extension Notice Agreement by and among Rockville
Financial, Inc., Rockville Bank and Christopher E.
Buchholz, effective January 1, 2010 (incorporated by
reference to Exhibit 10.4.1 to the Companys Annual
Report on
Form 10-K
for the year ended December 31, 2009 filed on
March 10, 2010)
|
118
|
|
|
|
|
|
10
|
.4.2
|
|
Employment Agreement as amended and restated by and among
Rockville Financial, Inc., Rockville Bank Christopher E.
Buchholz, effective January 1, 2011 (incorporated herein by
reference to Exhibit 10.3 to the Current Report on the
Companys
Form 8-K
filed on January 10, 2011)
|
|
10
|
.5
|
|
Employment Agreement as amended and restated by and among
Rockville Financial, Inc., Rockville Bank and Richard J.
Trachimowicz, effective January 1, 2009 (incorporated by
reference to Exhibit 10.5 to the Companys Annual
Report on
Form 10-K
for the year ended December 31, 2008 filed on
March 11, 2009)
|
|
10
|
.5.1
|
|
Rockville Bank Extension Notice Agreement by and among Rockville
Financial, Inc., Rockville Bank and Richard J. Trachimowicz,
effective January 1, 2010 (incorporated by reference to
Exhibit 10.5.1 to the Companys Annual Report on
Form 10-K
for the year ended December 31, 2009 filed on
March 10, 2010)
|
|
10
|
.5.2
|
|
Supplemental Executive Retirement Agreement of Rockville Bank by
and among Richard J. Trachimowicz effective December 6,
2010 filed herewith
|
|
10
|
.5.3
|
|
Employment Agreement as amended and restated by and among
Rockville Financial, Inc., Rockville Bank and Richard J.
Trachimowicz, effective January 1, 2011 (incorporated
herein by reference to Exhibit 10.5 to the Current Report
on the Companys
Form 8-K
filed on January 10, 2011)
|
|
10
|
.6
|
|
Supplemental Savings and Retirement Plan of Rockville Bank as
amended and restated effective December 31, 2007
(incorporated herein by reference to Exhibit 10.5 to the
Current Report on
Form 8-K
filed for Rockville Financial, Inc. filed on December 18,
2007)
|
|
10
|
.7
|
|
Rockville Bank Officer Incentive Compensation Plan (incorporated
herein by reference to Exhibit 10.2.3 to the Companys
Annual Report on
Form 10-K
for the year ended December 31, 2005 filed on
March 31, 2006)
|
|
10
|
.8
|
|
Rockville Bank Supplemental Executive Retirement Agreement for
Joseph F. Jeamel, Jr. (incorporated herein by reference to
Exhibit 10.9 to the Registration Statement filed on
Form S-1
filed for Rockville Financial, Inc. filed on December 17,
2004)
|
|
10
|
.8.1
|
|
First Amendment to the Supplemental Executive Retirement
Agreement for Joseph F. Jeamel, Jr. (incorporated herein by
reference to Exhibit 10.7.1 to the Current Report on
Form 8-K
filed for Rockville Financial, Inc. filed on December 18,
2007)
|
|
10
|
.9
|
|
Executive Split Dollar Life Insurance Agreement for Joseph F.
Jeamel, Jr. (incorporated herein by reference to
Exhibit 10.11 to the Registration Statement filed on
Form S-1
filed for Rockville Financial, Inc. filed on December 17,
2004)
|
|
10
|
.10
|
|
Rockville Bank Supplemental Executive Retirement Plan as amended
and restated effective December 31, 2007 (incorporated
herein by reference to Exhibit 10.9 to the Current Report
on
Form 8-K
filed for Rockville Financial, Inc. filed on December 18,
2007)
|
|
10
|
.11
|
|
Rockville Financial, Inc. 2006 Stock Incentive Award Plan
(incorporated herein by reference to Appendix B in the
Definitive Proxy Statement on Form 14A for Rockville
Financial, Inc. filed on July 3, 2006)
|
|
10
|
.12
|
|
Employment Agreement by and among Rockville Financial, Inc.,
Rockville Bank and William H.W. Crawford IV, effective
January 3, 2011 (incorporated herein by reference to
Exhibit 10.15 to the Current Report on the Companys
Form 8-K
filed on January 6, 2011)
|
|
10
|
.13
|
|
Supplemental Executive Retirement Agreement of Rockville Bank by
and among Mark A. Kucia effective December 6, 2010 filed
herewith
|
|
10
|
.13.1
|
|
Employment Agreement as amended and restated by and among
Rockville Financial, Inc., Rockville Bank and Mark A. Kucia,
effective January 1, 2011 filed herewith
|
|
14
|
|
|
Rockville Financial, Inc., Rockville Bank, Standards of Conduct
Policy Employees (incorporated herein by reference
to Exhibit 14 to the Companys Annual Report on
Form 10-K
for the year ended December 31, 2007 filed on
March 17, 2008)
|
|
21
|
|
|
Subsidiaries of Rockville Financial, Inc. and Rockville Bank
filed herewith.
|
|
23
|
.1
|
|
Consent of Independent Registered Public Accounting Firm,
Wolf & Company, P.C. filed herewith.
|
|
23
|
.2
|
|
Consent of Independent Registered Public Accounting Firm,
Deloitte & Touche, LLP filed herewith.
|
|
31
|
.1
|
|
Rule 13a-14(a)/15d-14(a)
Certification of the Chief Executive Officer filed herewith.
|
|
31
|
.2
|
|
Rule 13a-14(a)/15d-14(a)
Certification of the Chief Financial Officer filed herewith.
|
|
32
|
.0
|
|
Section 1350 Certification of the Chief Executive Officer
and Chief Financial Officer attached hereto
|
119
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Rockville Financial, Inc.
|
|
|
|
By:
|
/s/ William
J. McGurk
|
William J. McGurk
President, Chief Executive Officer
and Director
and
John T. Lund
Senior Vice President, Chief
Financial Officer and Treasurer
Date: March 10, 2011
120
Pursuant to the requirements of the Securities Act of 1934, this
report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates
indicated.
|
|
|
|
|
|
|
Signatures
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ William
J. McGurk
William
J. McGurk
|
|
President, Chief Executive Officer and Director
(Principal Executive Officer)
|
|
March 10, 2011
|
|
|
|
|
|
/s/ John
T. Lund
John
T. Lund
|
|
Senior Vice President, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
|
|
March 10, 2011
|
|
|
|
|
|
/s/ Michael
A. Bars
Michael
A. Bars
|
|
Vice Chairman
|
|
March 10, 2011
|
|
|
|
|
|
/s/ C.
Perry Chilberg
C.
Perry Chilberg
|
|
Director
|
|
March 10, 2011
|
|
|
|
|
|
/s/ William
H.W. Crawford IV
William
H.W. Crawford IV
|
|
Senior Executive Vice President and Director
|
|
March 10, 2011
|
|
|
|
|
|
/s/ David
A. Engelson
David
A. Engelson
|
|
Director
|
|
March 10, 2011
|
|
|
|
|
|
/s/ Pamela
J. Guenard
Pamela
J. Guenard
|
|
Director
|
|
March 10, 2011
|
|
|
|
|
|
/s/ Joseph
F. Jeamel, Jr.
Joseph
F. Jeamel, Jr.
|
|
Director
|
|
March 10, 2011
|
|
|
|
|
|
/s/ Kristen
A. Johnson
Kristen
A. Johnson
|
|
Director
|
|
March 10, 2011
|
|
|
|
|
|
/s/ Raymond
H. Lefurge, Jr.
Raymond
H. Lefurge, Jr.
|
|
Chairman
|
|
March 10, 2011
|
|
|
|
|
|
/s/ Thomas
S. Mason
Thomas
S. Mason
|
|
Director
|
|
March 10, 2011
|
|
|
|
|
|
/s/ Peter
F. Olson
Peter
F. Olson
|
|
Director
|
|
March 10, 2011
|
|
|
|
|
|
/s/ Rosemarie
Novello Papa
Rosemarie
Novello Papa
|
|
Director
|
|
March 10, 2011
|
|
|
|
|
|
/s/ Richard
M. Tkacz
Richard
M. Tkacz
|
|
Director
|
|
March 10, 2011
|
121