Attached files
file | filename |
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EX-32 - EX-32 - United Financial Bancorp, Inc. | y90511exv32.htm |
EX-31.1 - EX-31.1 - United Financial Bancorp, Inc. | y90511exv31w1.htm |
EX-31.2 - EX-31.2 - United Financial Bancorp, Inc. | y90511exv31w2.htm |
EXCEL - IDEA: XBRL DOCUMENT - United Financial Bancorp, Inc. | Financial_Report.xls |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
for the quarterly period ended June 30, 2011.
Commission File Number: 001-35028
ROCKVILLE FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
Connecticut (State or other jurisdiction of incorporation or organization) |
27-3577029 (I.R.S. Employer Identification No.) |
|
25 Park Street, Rockville, Connecticut (Address of principal executive offices) |
06066 (Zip Code) |
(860) 291-3600
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
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 (232.405 of this chapter) during the preceding 12 months (or
for such shorter prior that the registrant was required to submit and post such files).
Yes o No þ
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of large accelerated filer, accelerated filer
and smaller reporting company in Rule 12B-2 of the Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12B-2 of
the Act). Yes o No þ
As of July 29, 2011, there were 29,506,948 shares of Registrants no par value common stock
outstanding.
Table of Contents
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Exhibits |
||||||||
EX-31.1 | ||||||||
EX-31.2 | ||||||||
EX-32 | ||||||||
EX-101 INSTANCE DOCUMENT | ||||||||
EX-101 SCHEMA DOCUMENT | ||||||||
EX-101 CALCULATION LINKBASE DOCUMENT | ||||||||
EX-101 LABELS LINKBASE DOCUMENT | ||||||||
EX-101 PRESENTATION LINKBASE DOCUMENT | ||||||||
EX-101 DEFINITION LINKBASE DOCUMENT |
2
Table of Contents
Part I FINANCIAL INFORMATION
Item 1. Interim Financial Statements
Rockville Financial, Inc. and Subsidiaries
Consolidated Statements of Condition
(In Thousands, Except Share Amounts)
(Unaudited)
(In Thousands, Except Share Amounts)
(Unaudited)
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
ASSETS |
||||||||
CASH AND CASH EQUIVALENTS: |
||||||||
Cash and due from banks |
$ | 30,502 | $ | 16,692 | ||||
Short-term investments |
50,230 | 44,016 | ||||||
Total cash and cash equivalents |
80,732 | 60,708 | ||||||
AVAILABLE FOR SALE SECURITIES-At fair value |
153,838 | 125,447 | ||||||
HELD TO MATURITY SECURITIES-At amortized cost |
11,327 | 13,679 | ||||||
LOANS HELD FOR SALE |
| 380 | ||||||
LOANS RECEIVABLE (Net of allowance for loan
losses of $15,328 in 2011 and $14,312 in 2010) |
1,430,609 | 1,410,498 | ||||||
FEDERAL HOME LOAN BANK STOCK, at cost |
17,007 | 17,007 | ||||||
ACCRUED INTEREST RECEIVABLE |
4,578 | 4,176 | ||||||
DEFERRED TAX ASSET-Net |
7,744 | 11,327 | ||||||
PREMISES AND EQUIPMENT-Net |
14,507 | 14,912 | ||||||
GOODWILL |
1,149 | 1,149 | ||||||
CASH SURRENDER VALUE OF BANK-OWNED LIFE INSURANCE |
10,648 | 10,459 | ||||||
OTHER REAL ESTATE OWNED |
148 | 990 | ||||||
CURRENT FEDERAL TAX RECEIVABLE |
7,603 | | ||||||
PREPAID FDIC ASSESSMENTS |
2,930 | 3,875 | ||||||
OTHER ASSETS |
3,857 | 3,466 | ||||||
$ | 1,746,677 | $ | 1,678,073 | |||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
LIABILITIES: |
||||||||
DEPOSITS: |
||||||||
Non-interest-bearing |
$ | 166,863 | $ | 168,736 | ||||
Interest-bearing |
1,110,007 | 1,050,524 | ||||||
Total deposits |
1,276,870 | 1,219,260 | ||||||
MORTGAGORS AND INVESTORS ESCROW ACCOUNTS |
6,418 | 6,131 | ||||||
ADVANCES FROM THE FEDERAL HOME LOAN BANK |
116,892 | 261,423 | ||||||
AVAILABLE FOR SALE SECURITIES PAYABLE |
| 10,534 | ||||||
ACCRUED EXPENSES AND OTHER LIABILITIES |
14,372 | 14,297 | ||||||
TOTAL LIABILITIES |
1,414,552 | 1,511,645 | ||||||
COMMITMENTS AND CONTINGENCIES (Note 13) |
||||||||
STOCKHOLDERS EQUITY: |
||||||||
Preferred stock (no par value; 2,000,000 and 1,000,000 shares
authorized; no shares issued and outstanding) |
| | ||||||
Common stock (no par value; 60,000,000 shares authorized;
29,506,948 and 29,653,088 shares issued and 29,506,948 and 28,610,081
outstanding at June 30, 2011 and December 31, 2010, respectively) |
243,776 | 85,249 | ||||||
Additional paid-in capital |
14,932 | 4,789 | ||||||
Unearned compensation ESOP |
(10,028 | ) | (3,478 | ) | ||||
Treasury stock, at cost (1,043,007 shares at December 31, 2010) |
| (9,495 | ) | |||||
Retained earnings |
86,522 | 90,645 | ||||||
Accumulated other comprehensive loss, net of tax |
(3,077 | ) | (1,282 | ) | ||||
TOTAL STOCKHOLDERS EQUITY |
332,125 | 166,428 | ||||||
$ | 1,746,677 | $ | 1,678,073 | |||||
See accompanying notes to unaudited consolidated financial statements
3
Table of Contents
Rockville Financial, Inc. and Subsidiaries
Consolidated Statements of Operations
(In Thousands, Except Share Data)
(Unaudited)
(In Thousands, Except Share Data)
(Unaudited)
For the Three Months | For the Six Months | |||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
INTEREST AND DIVIDEND INCOME: |
||||||||||||||||
Loans |
$ | 17,481 | $ | 17,357 | $ | 35,016 | $ | 34,998 | ||||||||
Securities-interest |
1,286 | 1,145 | 2,335 | 2,342 | ||||||||||||
Securities-dividends |
149 | 115 | 279 | 218 | ||||||||||||
Interest-bearing deposits |
16 | 3 | 31 | 3 | ||||||||||||
Total interest and dividend income |
18,932 | 18,620 | 37,661 | 37,561 | ||||||||||||
INTEREST EXPENSE: |
||||||||||||||||
Deposits |
2,897 | 2,853 | 5,808 | 5,853 | ||||||||||||
Borrowed funds |
2,265 | 2,608 | 4,688 | 5,151 | ||||||||||||
Total interest expense |
5,162 | 5,461 | 10,496 | 11,004 | ||||||||||||
Net interest income |
13,770 | 13,159 | 27,165 | 26,557 | ||||||||||||
PROVISION FOR LOAN LOSSES |
754 | 909 | 1,506 | 1,812 | ||||||||||||
Net interest income after provision
for loan losses |
13,016 | 12,250 | 25,659 | 24,745 | ||||||||||||
NON-INTEREST INCOME: |
||||||||||||||||
Total other-than-temporary impairment
losses on equity securities |
| | (29 | ) | | |||||||||||
Service charges and fees |
1,682 | 1,992 | 3,278 | 3,234 | ||||||||||||
Net gain from sales of securities |
6,201 | | 6,201 | 188 | ||||||||||||
Net gain from sales of loans |
| 364 | 59 | 523 | ||||||||||||
Other income (loss) |
(64 | ) | 9 | (2 | ) | 107 | ||||||||||
Total non-interest income |
7,819 | 2,365 | 9,507 | 4,052 | ||||||||||||
NON-INTEREST EXPENSE: |
||||||||||||||||
Salaries and employee benefits |
6,613 | 4,831 | 12,284 | 9,621 | ||||||||||||
Service bureau fees |
1,128 | 987 | 2,187 | 1,986 | ||||||||||||
Occupancy and equipment |
1,100 | 1,055 | 2,266 | 2,182 | ||||||||||||
Professional fees |
498 | 368 | 1,182 | 758 | ||||||||||||
Marketing and promotions |
441 | 397 | 765 | 671 | ||||||||||||
FDIC assessments |
506 | 401 | 1,020 | 801 | ||||||||||||
Other real estate owned |
15 | 99 | 74 | 467 | ||||||||||||
Contribution to Rockville Bank
Foundation, Inc. |
| | 5,043 | | ||||||||||||
Loss on extinguishment of debt |
8,914 | | 8,914 | | ||||||||||||
Other |
1,493 | 1,254 | 2,917 | 2,541 | ||||||||||||
Total non-interest expense |
20,708 | 9,392 | 36,652 | 19,027 | ||||||||||||
INCOME (LOSS) BEFORE INCOME TAXES |
127 | 5,223 | (1,486 | ) | 9,770 | |||||||||||
INCOME TAX PROVISION (BENEFIT) |
84 | 1,759 | (507 | ) | 3,452 | |||||||||||
NET INCOME (LOSS) |
$ | 43 | $ | 3,464 | $ | (979 | ) | $ | 6,318 | |||||||
See accompanying notes to unaudited consolidated financial statements.
(Continued)
4
Table of Contents
Rockville Financial, Inc. and Subsidiaries
Consolidated Statements of Operations Concluded
(In Thousands, Except Share Data)
(Unaudited)
Consolidated Statements of Operations Concluded
(In Thousands, Except Share Data)
(Unaudited)
For the Three Months | For the Six Months | |||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net income (loss) per share
(see Note 2): |
||||||||||||||||
Basic |
$ | 0.00 | $ | 0.12 | $ | (0.03 | ) | $ | 0.22 | |||||||
Diluted |
$ | 0.00 | $ | 0.12 | $ | (0.03 | ) | $ | 0.22 | |||||||
Weighted-average shares
outstanding: |
||||||||||||||||
Basic |
28,803,416 | 28,086,689 | 28,941,501 | 28,087,770 | ||||||||||||
Diluted |
28,931,099 | 28,116,659 | 28,941,501 | 28,105,296 |
5
Table of Contents
Rockville Financial, Inc. and Subsidiaries
Consolidated Statement of Changes in Stockholders Equity
(In Thousands, Except Share Data)
(Unaudited)
Common Stock | Accumulated | |||||||||||||||||||||||||||||||||||
Additional | Unearned | Treasury | Treasury | Other | Total | |||||||||||||||||||||||||||||||
Paid-in | Compensation | Stock | Stock | Retained | Comprehensive | Stockholders | ||||||||||||||||||||||||||||||
Shares | Amount | Capital | ESOP | Shares | Amount | Earnings | Loss | Equity | ||||||||||||||||||||||||||||
Balance at December 31, 2010 |
19,551,057 | $ | 85,249 | $ | 4,789 | $ | (3,478 | ) | 687,682 | $ | (9,495 | ) | $ | 90,645 | $ | (1,282 | ) | $ | 166,428 | |||||||||||||||||
Comprehensive loss: |
||||||||||||||||||||||||||||||||||||
Net loss |
| | | | | | (979 | ) | | (979 | ) | |||||||||||||||||||||||||
Net unrealized loss on securities
available for sale, net of
reclassification adjustments and tax
effects |
| | | | | | | (2,118 | ) | (2,118 | ) | |||||||||||||||||||||||||
Change in accumulated other
comprehensive loss related to employee
benefit plans, net of reclassification
adjustments and tax effects |
| | | | | | | 323 | 323 | |||||||||||||||||||||||||||
Total comprehensive loss |
(2,774 | ) | ||||||||||||||||||||||||||||||||||
Cancel Rockville Financial MHC, Inc. shares |
(10,689,250 | ) | | 9,685 | | | | | | 9,685 | ||||||||||||||||||||||||||
Treasury shares retired |
(687,682 | ) | (9,495 | ) | | | (687,682 | ) | 9,495 | | | | ||||||||||||||||||||||||
Exchange of common stock @ 1.5167
shares per common share |
4,222,539 | | | | | | | | | |||||||||||||||||||||||||||
Fractional share distribution |
(2,226 | ) | (22 | ) | | | | | | | (22 | ) | ||||||||||||||||||||||||
Proceeds from stock offering, net of
offering costs |
17,109,886 | 168,044 | | | | | | | 168,044 | |||||||||||||||||||||||||||
Purchase of common stock by ESOP |
| | | (7,071 | ) | | | | | (7,071 | ) | |||||||||||||||||||||||||
Share-based compensation expense |
6,166 | | 383 | | | | | | 383 | |||||||||||||||||||||||||||
ESOP shares released or committed to be
released |
| | 122 | 521 | | | | | 643 | |||||||||||||||||||||||||||
Cancellation of shares for tax withholding |
(3,542 | ) | | (47 | ) | | | | | | (47 | ) | ||||||||||||||||||||||||
Dividends paid ($0.13 per common share) |
| | | | | | (3,144 | ) | | (3,144 | ) | |||||||||||||||||||||||||
Balance at June 30, 2011 |
29,506,948 | $ | 243,776 | $ | 14,932 | $ | (10,028 | ) | | $ | | $ | 86,522 | $ | (3,077 | ) | $ | 332,125 | ||||||||||||||||||
See accompanying notes to unaudited consolidated financial statements.
6
Table of Contents
Rockville Financial, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
For the Six Months | ||||||||
Ended June 30, | ||||||||
2011 | 2010 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
Net (loss) income |
$ | (979 | ) | $ | 6,318 | |||
Adjustments to reconcile net (loss) income to net cash (used in)
provided by operating activities: |
||||||||
Amortization and accretion of premiums and discounts on
investments, net |
(39 | ) | (89 | ) | ||||
Share-based compensation expense |
383 | 254 | ||||||
Amortization of ESOP Expense |
643 | 398 | ||||||
Provision for loan losses |
1,506 | 1,812 | ||||||
Net gain from sales of securities |
(6,201 | ) | (188 | ) | ||||
Loss on extinguishment of debt |
8,914 | | ||||||
Other-than-temporary impairment of securities |
29 | | ||||||
Loans originated for sale |
(4,597 | ) | (26,122 | ) | ||||
Proceeds from sales of loans |
4,977 | 26,122 | ||||||
Loss on sale of OREO |
93 | 91 | ||||||
Depreciation and amortization |
672 | 741 | ||||||
Loss on disposal of equipment |
110 | 1 | ||||||
Deferred income tax provision (benefit) |
4,724 | (149 | ) | |||||
Increase in cash surrender value of bank-owned life insurance |
(189 | ) | (191 | ) | ||||
Net change in: |
||||||||
Deferred loan fees and premiums |
(202 | ) | (1 | ) | ||||
Accrued interest receivable |
(402 | ) | (266 | ) | ||||
Prepaid FDIC assessment |
945 | 727 | ||||||
Other assets |
(7,994 | ) | 40 | |||||
Accrued expenses and other liabilities |
(10,135 | ) | (3,366 | ) | ||||
Net cash (used in) provided by operating activities |
(7,742 | ) | 6,132 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
Proceeds from sales of available for sale securities |
14,465 | 399 | ||||||
Proceeds from calls and maturities of available for sale securities |
7,500 | 470 | ||||||
Principal payments on available for sale securities |
8,619 | 11,255 | ||||||
Principal payments on held to maturity mortgage-backed securities |
2,380 | 2,360 | ||||||
Purchases of available for sale securities |
(56,052 | ) | (22,957 | ) | ||||
Proceeds from sale of OREO |
933 | 682 | ||||||
Capitalized OREO costs |
| (105 | ) | |||||
Purchase of loans |
| (82 | ) | |||||
Loan (originations) principal payments, net |
(21,599 | ) | (24,306 | ) | ||||
Purchases of premises and equipment |
(402 | ) | (87 | ) | ||||
Proceeds from sale of other assets |
25 | | ||||||
Net cash used in investing activities |
(44,131 | ) | (32,371 | ) | ||||
See accompanying notes to unaudited consolidated financial statements.
(Continued)
7
Table of Contents
Rockville Financial, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Concluded
(In Thousands)
(Unaudited)
For the Six Months | ||||||||
Ended June 30, | ||||||||
2011 | 2010 | |||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
Net increase in deposits |
57,610 | 21,271 | ||||||
Net increase (decrease) in mortgagors and investors escrow accounts |
287 | (1,210 | ) | |||||
Net decrease in short-term Federal Home Loan Bank advances |
| (7,000 | ) | |||||
Proceeds from long-term Federal Home Loan Bank advances |
| 20,800 | ||||||
Contractual repayment of long-term Federal Home Loan Bank advances |
(22,331 | ) | (5,101 | ) | ||||
Prepayment of long-term Federal Home Loan Bank advances and penalty |
(131,114 | ) | | |||||
Common stock purchase by ESOP |
(7,071 | ) | | |||||
Proceeds from stock offering, net of offering costs |
168,044 | | ||||||
Cancellation of Rockville Financial, MHC Inc. shares |
9,685 | | ||||||
Fractional shares paid |
(22 | ) | | |||||
Cancellation of shares for tax withholding |
(47 | ) | (30 | ) | ||||
Cash dividends paid on common stock |
(3,144 | ) | (2,262 | ) | ||||
Net cash provided by financing activities |
71,897 | 26,468 | ||||||
NET INCREASE IN CASH AND CASH EQUIVALTENTS |
20,024 | 229 | ||||||
CASH AND CASH EQUIVALENTSBeginning of period |
60,708 | 19,307 | ||||||
CASH AND CASH EQUIVALENTSEnd of period |
$ | 80,732 | $ | 19,536 | ||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
||||||||
Cash paid during the year for: |
||||||||
Interest |
$ | 10,983 | $ | 10,990 | ||||
Income taxes |
3,100 | 5,050 | ||||||
Transfer of loans to other real estate owned |
184 | 665 | ||||||
Goodwill recognition from subsidiary acquisition |
| 79 | ||||||
Transfer to fixed assets from subsidiary acquisition |
| 23 |
See accompanying notes to unaudited consolidated financial statements.
8
Table of Contents
Rockville Financial, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
1. | Basis of Presentation and Principles of Consolidation |
On March 3, 2011, Rockville Financial, Inc., (the Company), completed the second-step conversion of Rockville Bank (the Bank) from a mutual holding company structure to a stock holding company structure (the Conversion) pursuant to a Plan of Conversion and Reorganization (the Plan). 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. Upon completion of the Conversion, the Company became the holding company for the Bank and acquired ownership of all the issued and outstanding shares of the Banks common stock. In connection with the Conversion, 17,109,886 shares of common stock of the Company (the Common Stock) were sold in a subscription offering to certain depositors of the Bank and its employee stock ownership plan for $10.00 per share, or $171,099,000 in the aggregate (the Offering) net of offering costs of $3,055,000. In accordance with the Plan, 1.5167 shares of Common Stock (without taking into consideration cash issued in lieu of fractional shares) were issued in exchange for each outstanding share of common stock of the Companys predecessor, also named Rockville Financial, Inc. (Old RFI), the former state-chartered mid-tier holding company for the Bank, held by persons other than Rockville Financial MHC, Inc., the mutual holding company that owned the majority of Old RFIs common stock. New Rockville Financial, Inc. changed its name to Rockville Financial, Inc. effective March 3, 2011. | ||
The conversion was accounted for as a reorganization with no change to the historical basis of Rockville Financial, Inc.s assets, liabilities, and equity. All references to the number of shares outstanding for purposes of calculating per share amounts are restated to give retroactive recognition to the exchange ratio applied in the conversion. | ||
The consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and with the instructions to SEC Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included in the interim consolidated financial statements. The results of operations for the six months ended June 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. These interim consolidated financial statements should be read in conjunction with the Companys 2010 consolidated financial statements and notes thereto included in the Companys Annual Report on Form 10-K for the year ended December 31, 2010. | ||
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent 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, pension and other post-retirement benefits, share-based compensation expense, valuation of deferred tax assets and the evaluation of investment securities for other-than-temporary impairment. |
9
Table of Contents
2. | Earnings Per Share |
The following table sets forth the calculation of basic and diluted earnings (loss) per share for the three and six months ended June 30, 2011 and 2010: |
For the Three Months | For the Six Months | |||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands, except share data) | ||||||||||||||||
Net income (loss) |
$ | 43 | $ | 3,464 | $ | (979 | ) | $ | 6,318 | |||||||
Weighted-average basic shares
outstanding |
28,803,416 | 28,086,689 | 28,941,501 | 28,087,770 | ||||||||||||
Diluted effect of stock options |
127,683 | 29,970 | | 17,526 | ||||||||||||
Weighted-average diluted
shares |
28,931,099 | 28,116,659 | 28,941,501 | 28,105,296 | ||||||||||||
Earnings per share: |
||||||||||||||||
Basic |
$ | 0.00 | $ | 0.12 | $ | (0.03 | ) | $ | 0.22 | |||||||
Diluted |
$ | 0.00 | $ | 0.12 | $ | (0.03 | ) | $ | 0.22 | |||||||
Share and per share amounts related to periods prior to the date of completion of the conversion (March 3, 2011) have been restated to give retroactive recognition to the exchange ratio applied in the conversion (1.5167). Treasury shares for 2010 and unallocated common shares held by the ESOP for 2011 and 2010 are not included in the weighted-average number of common shares outstanding for either basic or diluted earnings per share calculations. Unvested restricted shares are included in the weighted-average number of common shares outstanding for basic earnings per share calculations. For the six months ended June 30, 2011 and 2010, the Companys common stock equivalents relate solely to stock options granted and outstanding. For the three months ended June 30, 2011 and 2010, options to purchase 127,683 and 29,970 shares of common stock, respectively, were considered in the computation of potential common shares for the purpose of diluted EPS. Stock options that would have an anti-dilutive effect on earnings per share are excluded from the calculation. For the six months ended June 30, 2010, options to purchase 17,526 shares of common stock were considered in the computation of potential common shares for the purpose of diluted EPS. For the six months ended June 30, 2011, no options to purchase shares of common stock were considered in the computation of potential common shares for the purpose of diluted EPS as the effect of the including them would have been anti-dilutive. |
3. | Recent Accounting Pronouncements |
Comprehensive Income (Topic 220): In June 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-05, Presentation of Comprehensive Income. The Update eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders equity to improve comparability, consistency, and transparency of financial reporting. An entity has the option to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This guidance is effective for the Company for the first interim and annual periods beginning after December 15, 2011 and will be applied retrospectively. Adoption of ASU 2011-05 is not expected to have a material impact on the Companys consolidated financial statements. | ||
Fair Value Measurement (Topic 820): In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (IFRSs). The amendments in this Update are intended to improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and IFRSs and to explain how to measure fair value. This guidance is effective for the Company for the first interim and annual periods beginning after December 15, 2011 and will be applied prospectively. Adoption of ASU 2011-04 is not expected to have a material impact on the Companys consolidated financial statements. | ||
Receivables (Topic 310): In April 2011, the FASB issued ASU No. 2011-02, A Creditors Determination of Whether a Restructuring Is a Troubled Debt Restructuring. This ASU clarifies the guidance on a creditors evaluation of whether it has granted a concession and whether a debtor is experiencing financial difficulties for |
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purposes of determining whether a restructuring constitutes a troubled debt restructuring. This guidance is effective for the Company for the first interim period beginning after June 15, 2011 but will be applied retrospectively to January 1, 2011 for the Companys 2011 fiscal year. Adoption of ASU 2011-02 is not expected to have a material impact on the Companys consolidated financial statements. | ||
Receivables (Topic 310): In January 2011, the FASB issued 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. ASU No. 2011-02 (above) clarifies the guidance of what constitutes a troubled debt restructuring. Adoption of ASU 2011-01 occurs upon adoption of ASU 2011-02 and is not expected to have a material impact on the Companys consolidated financial statements. | ||
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 are incorporated into the June 30, 2011 consolidated financial statements and have significantly increased the Companys loan disclosures. |
4. | Fair Value Measurements |
The Company groups its assets and liabilities generally measured at fair value in
three levels based upon a three-tier hierarchy 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 that are recorded at fair value on a recurring basis. There were no
liabilities recorded at fair value on a recurring basis.
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
an independent pricing service. 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 private placement securities and thinly traded
equity securities. All fair value measurements are obtained from a third party pricing
service and are not adjusted by management.
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Assets Recorded at Fair Value on a Recurring Basis: |
Fair Value Measurements | ||||||||||||||||
At June 30, 2011 | ||||||||||||||||
Quoted | ||||||||||||||||
Prices in | ||||||||||||||||
Active | ||||||||||||||||
Markets for | Other | Significant | ||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||
Total Fair | Assets | Inputs | Inputs | |||||||||||||
Value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
(In thousands) | ||||||||||||||||
Available for Sale Securities: |
||||||||||||||||
U.S. Government and government-sponsored
enterprise obligations |
$ | 44,381 | $ | 3,009 | $ | 41,372 | $ | | ||||||||
Government-sponsored residential
mortgage-backed securities |
101,593 | | 101,593 | | ||||||||||||
Corporate debt securities |
4,550 | | 4,550 | | ||||||||||||
Marketable equity securities |
3,314 | 3,241 | | 73 | ||||||||||||
Total assets measured at fair value |
$ | 153,838 | $ | 6,250 | $ | 147,515 | $ | 73 | ||||||||
Fair Value Measurements | ||||||||||||||||
At December 31, 2010 | ||||||||||||||||
Quoted | ||||||||||||||||
Prices in | ||||||||||||||||
Active | ||||||||||||||||
Markets for | Other | Significant | ||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||
Total Fair | Assets | Inputs | Inputs | |||||||||||||
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 | ||||||||
There were no changes in Level 3 assets measured at fair value for the six months ended June 30, 2011 and there were no transfers in or out of Level 1 and Level 2 for the six months ended June 30, 2011. | ||
Items Measured at Fair Value on a Non-Recurring Basis: | ||
The Company may also be required, from time to time, to measure certain other assets at fair value on a non-recurring basis in accordance with generally accepted accounting principles. These adjustments to fair value usually result from application of lower-of-cost-or-market accounting or write-downs of individual assets. | ||
The following is a description of the valuation methodologies used for certain assets that are recorded at fair value on a non-recurring basis. | ||
Other Real Estate Owned: The Company classifies property acquired through foreclosure or acceptance of deed-in-lieu of foreclosure as other real estate owned in its financial statements. Upon foreclosure, the property securing the loan is recorded at fair value as determined by real estate appraisals less the estimated selling expense. Appraisals are based upon observable market data such as comparable sales within the real estate market; 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. |
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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 and the specific reserve allocations based
upon observable market price or current appraised value of the collateral less costs and
discounts based on managements judgment of current conditions. Based on the significance
of managements judgment, the Company records collateral dependent impaired loans as
non-recurring Level 3 fair value measurements.
Assets Recorded at Fair Value on a Non-recurring Basis:
The following table presents the Companys assets measured at fair value on a non-recurring
basis for the three and six months ended June 30, 2011 and 2010:
Fair Value Measurements | ||||||||||||||||||||||||
At June 30, 2011 using: | ||||||||||||||||||||||||
Quoted Prices | ||||||||||||||||||||||||
in Active | ||||||||||||||||||||||||
Markets for | Other | Significant | Total Losses | Total Losses | ||||||||||||||||||||
Identical | Observable | Unobservable | for the three | for the six | ||||||||||||||||||||
Assets | Inputs | Inputs | months ended | months ended | ||||||||||||||||||||
Total | (Level 1) | (Level 2) | (Level 3) | June 30, 2011 | June 30, 2011 | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Other real estate owned |
$ | 148 | $ | | $ | | $ | 148 | $ | | $ | | ||||||||||||
Impaired loans |
1,286 | | | 1,286 | (10 | ) | (318 | ) | ||||||||||||||||
Total |
$ | 1,434 | $ | | $ | | $ | 1,434 | $ | (10 | ) | $ | (318 | ) | ||||||||||
Fair Value Measurements | ||||||||||||||||||||||||
At June 30, 2010 using: | ||||||||||||||||||||||||
Quoted Prices | ||||||||||||||||||||||||
in Active | ||||||||||||||||||||||||
Markets for | Other | Significant | Total Losses | Total Losses | ||||||||||||||||||||
Identical | Observable | Unobservable | for the three | for the six | ||||||||||||||||||||
Assets | Inputs | Inputs | months ended | months ended | ||||||||||||||||||||
Total | (Level 1) | (Level 2) | (Level 3) | June 30, 2010 | June 30, 2010 | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Other real estate owned |
$ | 2,953 | $ | | $ | | $ | 2,953 | $ | | $ | | ||||||||||||
Impaired loans |
7,067 | | | 7,067 | (941 | ) | (1,444 | ) | ||||||||||||||||
Total |
$ | 10,020 | $ | | $ | | $ | 10,020 | $ | (941 | ) | $ | (1,444 | ) | ||||||||||
There were no liabilities reported at fair value on a non-recurring basis on the
balance sheet at June 30, 2011 or 2010.
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As of June 30, 2011 and December 31, 2010, the carrying value and estimated fair values of
the Companys financial instruments are as described below.
June 30, 2011 | December 31, 2010 | |||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
Value | Value | Value | Value | |||||||||||||
(In thousands) | ||||||||||||||||
Financial assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 80,732 | $ | 80,732 | $ | 60,708 | $ | 60,708 | ||||||||
Available for sale securities |
153,838 | 153,838 | 125,447 | 125,447 | ||||||||||||
Held to maturity securities |
11,327 | 12,288 | 13,679 | 14,638 | ||||||||||||
Loans receivable-net |
1,430,609 | 1,446,040 | 1,410,498 | 1,415,387 | ||||||||||||
Loans held for sale |
| | 380 | 380 | ||||||||||||
FHLBB stock |
17,007 | 17,007 | 17,007 | 17,007 | ||||||||||||
Accrued interest receivable |
4,578 | 4,578 | 4,176 | 4,176 | ||||||||||||
Financial liabilities: |
||||||||||||||||
Deposits |
1,276,870 | 1,284,251 | 1,219,260 | 1,200,517 | ||||||||||||
Mortgagors and investors
escrow accounts |
6,418 | 6,418 | 6,131 | 6,131 | ||||||||||||
Advances from FHLBB |
116,892 | 122,241 | 261,423 | 274,557 |
Certain financial instruments and all nonfinancial investments are exempt from disclosure
requirements. Accordingly, the aggregate fair value of amounts presented above may not
necessarily represent the underlying fair value of the Company.
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5. Investment Securities
The amortized cost, gross unrealized gains, gross unrealized losses and fair values
of available for sale and held to maturity securities at June 30, 2011 and December 31,
2010 are as follows:
Gross Unrealized |
Gross Unrealized |
|||||||||||||||
June 30, 2011 | Amortized Cost | Gains | Losses | Fair Value | ||||||||||||
(In thousands) | ||||||||||||||||
Available for sale: |
||||||||||||||||
Debt securities: |
||||||||||||||||
U.S. Government and government-
sponsored enterprise obligations |
$ | 44,440 | $ | 193 | $ | 252 | $ | 44,381 | ||||||||
Government-sponsored residential
mortgage-backed securities |
97,536 | 4,058 | 1 | 101,593 | ||||||||||||
Corporate debt securities |
5,908 | 13 | 1,371 | 4,550 | ||||||||||||
Total debt securities |
147,884 | 4,264 | 1,624 | 150,524 | ||||||||||||
Marketable equity securities, by sector: |
||||||||||||||||
Banks |
79 | 85 | | 164 | ||||||||||||
Industrial |
109 | 60 | | 169 | ||||||||||||
Mutual funds |
2,687 | 109 | | 2,796 | ||||||||||||
Oil and gas |
132 | 53 | | 185 | ||||||||||||
Total marketable equity securities |
3,007 | 307 | | 3,314 | ||||||||||||
Total available for sale securities |
$ | 150,891 | $ | 4,571 | $ | 1,624 | $ | 153,838 | ||||||||
At June 30, 2011, the net unrealized gain on securities available for sale of $2.9
million, net of income taxes of $1.0 million, or $1.9 million, is included in
accumulated other comprehensive loss.
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | ||||||||||||||
June 30, 2011 | Cost | Gains | Losses | Fair Value | ||||||||||||
(In thousands) | ||||||||||||||||
Held to maturity: |
||||||||||||||||
Government-sponsored
residential
mortgage-backed
securities |
$ | 11,327 | $ | 961 | $ | | $ | 12,288 | ||||||||
In June 2011, the Company sold $14.5 million in available-for-sale equity investments
which includes $283,000 of Fannie Mae and Freddie Mac preferred stock securities. The
sale of securities resulted in a gain of $6.2 million, or $4.0 million after tax. In
addition to taking advantage of the opportunity to realize a gain, the sale almost
entirely eliminated the Companys equity securities portfolio, removing a significant risk
of market volatility from the Companys balance sheet. While management does not
anticipate using new equity investments as part of the on-going investment strategy, the
Company continues to hold a modest equity portfolio to preserve its ability to utilize
equity investments in the future.
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Table of Contents
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | ||||||||||||||
Cost | Gains | Losses | Fair Value | |||||||||||||
December 31, 2010 | (In thousands) | |||||||||||||||
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 available for sale securities |
$ | 119,242 | $ | 9,011 | $ | 2,806 | $ | 125,447 | ||||||||
Held to maturity: |
||||||||||||||||
Government-sponsored residential
mortgage-backed
securities |
$ | 13,679 | $ | 959 | $ | | $ | 14,638 | ||||||||
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.
The amortized cost and fair value of debt securities at June 30, 2011 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 are not due at a single maturity date, they are not included in
the maturity categories in the following maturity summary.
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Available for Sale | Held to Maturity | |||||||||||||||
Amortized | Fair | Amortized | Fair | |||||||||||||
Cost | Value | Cost | Value | |||||||||||||
June 30, 2011 | (In thousands) | |||||||||||||||
Maturity: |
||||||||||||||||
Within 1 year |
$ | 3,008 | $ | 3,009 | $ | | $ | | ||||||||
After 1 but within 5 years |
24,506 | 24,688 | | | ||||||||||||
After 5 but within 10 years |
20,000 | 19,771 | | | ||||||||||||
After 10 years |
2,834 | 1,463 | | | ||||||||||||
50,348 | 48,931 | | | |||||||||||||
Mortgage-backed securities |
97,536 | 101,593 | 11,327 | 12,288 | ||||||||||||
$ | 147,884 | $ | 150,524 | $ | 11,327 | $ | 12,288 | |||||||||
At June 30, 2011, securities with a fair value of $3.0 million were pledged to secure
public deposits and U.S. Treasury, tax and loan payments.
For the six months ended June 30, 2011, sales proceeds of available for sale securities
totaled $14.5 million with gross gains totaling $6.3 million and gross losses totaling
$125,000.
As of June 30, 2011, 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 tables summarize gross unrealized losses and fair value, aggregated by
investment category and length of time the investments have been in a continuous unrealized
loss position, as of June 30, 2011 and December 31, 2010:
Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
Value | Loss | Value | Loss | Value | Loss | |||||||||||||||||||
June 30, 2011 | (In thousands) | |||||||||||||||||||||||
Available for sale: |
||||||||||||||||||||||||
U.S. Government and
government-sponsored
enterprise obligations |
$ | 16,748 | $ | 252 | $ | | $ | | $ | 16,748 | $ | 252 | ||||||||||||
Government-sponsored
residential
mortgage-backed
securities |
62 | 1 | | | 62 | 1 | ||||||||||||||||||
Corporate debt securities |
| | 1,464 | 1,371 | 1,464 | 1,371 | ||||||||||||||||||
Total debt securities |
$ | 16,810 | $ | 253 | $ | 1,464 | $ | 1,371 | $ | 18,274 | $ | 1,624 | ||||||||||||
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Less than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
Value | Loss | Value | Loss | Value | Loss | |||||||||||||||||||
December 31, 2010 | (In thousands) | |||||||||||||||||||||||
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 | ||||||||||||
Of the securities summarized above as of June 30, 2011, 7 issues had unrealized losses for
less than twelve months and 1 issue had an unrealized loss for twelve months or more. As of
December 31, 2010, 21 issues had unrealized losses for less than twelve months and 9 issues
had losses for twelve months or more.
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 treasury securities. The Company does
not expect these securities to settle at a price less than the amortized cost basis 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 June 30, 2011.
Corporate debt securities. The unrealized losses on corporate debt securities related to one
pooled trust preferred security, Preferred Term Security XXVIII, Ltd (PRETSL XXVIII). The
unrealized loss on this security is caused by the low interest rate environment because it
reprices quarterly to three month LIBOR and market spreads on similar securities have
increased. The yield on this security is 0.69% verses a coupon rate at purchase of 5.27%. No
loss of principal or break in yield is projected. Based on the existing credit profile,
management does not believe that this investment will suffer from any credit related losses.
Because the Company does not intend to sell the investment and it is not more likely than
not that the Company will be required to sell the investments before recovery of its
amortized cost basis, which may be maturity, the Company does not consider this investment
to be other-than-temporarily impaired at June 30, 2011.
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.
Management believes the policy for evaluating securities for other-than-temporary impairment
is critical because it involves significant judgments by management and could have a
material impact on our operations.
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6. Loans Receivable and Allowance for Loan Losses
A summary of the Companys loan portfolio is as follows:
June 30, 2011 | December 31, 2010 | |||||||
(In thousands) | ||||||||
Real estate loans: |
||||||||
Residential |
$ | 724,061 | $ | 719,925 | ||||
Commercial |
509,045 | 489,511 | ||||||
Construction |
71,846 | 78,627 | ||||||
Commercial business loans |
135,816 | 130,303 | ||||||
Installment and collateral loans |
4,783 | 5,921 | ||||||
Total loans |
1,445,551 | 1,424,287 | ||||||
Net deferred loan costs and premiums |
386 | 523 | ||||||
Allowance for loan losses |
(15,328 | ) | (14,312 | ) | ||||
Loans, net |
$ | 1,430,609 | $ | 1,410,498 | ||||
June 30, 2011 | December 31, 2010 | |||||||
(In thousands) | ||||||||
Recorded investment in impaired loans for which
there is a related allowance for loan losses |
$ | 1,534 | $ | 2,233 | ||||
Recorded investment in impaired loans for which
there is no related allowance for loan losses |
11,328 | 10,127 | ||||||
Total impaired loans |
$ | 12,862 | $ | 12,360 | ||||
Valuation allowance related to impaired loans |
$ | 247 | $ | 358 | ||||
Year to date average recorded investment in impaired loans |
$ | 12,441 | $ | 13,112 | ||||
Year to date interest income recognized on impaired loans
on a cash basis |
$ | 211 | $ | 343 |
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 collateral 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 obligor 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 loans require that our internal
independent credit area further evaluate the risk rating of
19
Table of Contents
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.
The following table presents the Companys loans by risk rating at June 30, 2011 and
December 31, 2010.
Residential | Commercial | Installment | ||||||||||||||||||
Real Estate | Real Estate | Construction | Commercial | and Collateral | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
June 30, 2011 |
||||||||||||||||||||
Loans rated
1 - 5 |
$ | 714,270 | $ | 472,800 | $ | 63,944 | $ | 130,994 | $ | 4,752 | ||||||||||
Loans rated 6 |
1,591 | 20,871 | 3,294 | 2,386 | | |||||||||||||||
Loans rated 7 |
8,165 | 15,374 | 4,608 | 1,992 | 31 | |||||||||||||||
Loans rated 8 |
35 | | | 444 | | |||||||||||||||
Loans rated 9 |
| | | | | |||||||||||||||
$ | 724,061 | $ | 509,045 | $ | 71,846 | $ | 135,816 | $ | 4,783 | |||||||||||
December 31, 2010 |
||||||||||||||||||||
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 | |||||||||||
Note: All loans rated 9 have been fully written-off.
The Companys lending activities are conducted primarily 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 single-family grants loans for the construction of
residential homes, residential developments and land development projects. The ultimate
repayment of these loans is dependent on the borrowers credit worthiness, the local economy
and, for real estate loans, the local real estate market.
20
Table of Contents
Changes in the allowance for loss losses for the periods ended June 30, 2011 and 2010 are as
follows:
For the Three | For the Three | For the Six | For the Six | |||||||||||||
Months Ended | Months Ended | Months Ended | Months Ended | |||||||||||||
June 30, 2011 | June 30, 2010 | June 30, 2011 | June 30, 2010 | |||||||||||||
(In thousands) | ||||||||||||||||
Balance, beginning of period |
$ | 15,026 | $ | 13,418 | $ | 14,312 | $ | 12,539 | ||||||||
Provision for loan losses: |
||||||||||||||||
Real estate(1) |
671 | 655 | 1,078 | 1,501 | ||||||||||||
Commercial |
69 | 339 | 161 | 463 | ||||||||||||
Installment and collateral |
(21 | ) | (5 | ) | (19 | ) | (4 | ) | ||||||||
Unallocated |
35 | (80 | ) | 286 | (148 | ) | ||||||||||
Loans charged-off: |
||||||||||||||||
Real estate(1) |
(235 | ) | (1,155 | ) | (315 | ) | (1,155 | ) | ||||||||
Commercial |
(216 | ) | (25 | ) | (216 | ) | (50 | ) | ||||||||
Consumer |
(9 | ) | (8 | ) | (17 | ) | (14 | ) | ||||||||
Recoveries of loans previously
charged-off: |
||||||||||||||||
Real estate(1) |
1 | 1 | 48 | 3 | ||||||||||||
Commercial |
3 | | 4 | | ||||||||||||
Installment and collateral |
4 | 4 | 6 | 9 | ||||||||||||
Balance, end of period |
$ | 15,328 | $ | 13,144 | $ | 15,328 | $ | 13,144 | ||||||||
(1) | Includes residential real estate, commercial real estate and construction loans. |
Further information pertaining to the allowance for loan losses and impaired loans at June
30, 2011 and December 31, 2010 follows:
Residential | Commercial | Installment | ||||||||||||||||||||||||||
Real | Real | and | ||||||||||||||||||||||||||
Estate | Estate | Construction | Commercial | Collateral | Unallocated | Total | ||||||||||||||||||||||
June 30, 2011 | (In thousands) | |||||||||||||||||||||||||||
Amount of allowance
for loan losses
for loans deemed to
be impaired |
$ | 245 | $ | | $ | | $ | | $ | 2 | $ | | $ | 247 | ||||||||||||||
Amount of allowance
for loan losses for
loans not deemed to
be impaired |
4,932 | 5,734 | 1,710 | 2,245 | 49 | 411 | 15,081 | |||||||||||||||||||||
Loans deemed to be
impaired |
7,239 | 2,559 | 2,171 | 866 | 27 | | 12,862 | |||||||||||||||||||||
Loans not deemed to
be impaired |
716,822 | 506,486 | 69,675 | 134,950 | 4,756 | | 1,432,689 |
21
Table of Contents
Residential | Commercial | Installment | ||||||||||||||||||||||||||
Real | Real | and | ||||||||||||||||||||||||||
Estate | Estate | Construction | Commercial | Collateral | Unallocated | Total | ||||||||||||||||||||||
December 31, 2010 | (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 |
713,949 | 486,521 | 75,981 | 129,589 | 5,887 | | 1,411,927 | |||||||||||||||||||||
The following is a summary of past due and non-accrual loans at June 30, 2011 and
December 31, 2010:
Greater | Past Due | |||||||||||||||||||||||
than 89 | 90 Days | |||||||||||||||||||||||
30-59 | 60-89 | Days | or More | Loans on | ||||||||||||||||||||
Days Past | Days Past | Past | Total | and Still | Non- | |||||||||||||||||||
Due | Due | Due | Past Due | Accruing | accrual | |||||||||||||||||||
June 30, 2011 | (In thousands) | |||||||||||||||||||||||
Real estate loans: |
||||||||||||||||||||||||
Residential |
$ | 433 | $ | 957 | $ | 4,785 | $ | 6,175 | $ | | $ | 7,239 | ||||||||||||
Commercial |
| 112 | 1,722 | 1,834 | | 2,559 | ||||||||||||||||||
Construction |
948 | 1,003 | 2,171 | 4,122 | | 2,171 | ||||||||||||||||||
Commercial business loans |
431 | 27 | 124 | 582 | | 866 | ||||||||||||||||||
Installment and collateral loans |
8 | 6 | 1 | 15 | | 27 | ||||||||||||||||||
Total |
$ | 1,820 | $ | 2,105 | $ | 8,803 | $ | 12,728 | $ | | $ | 12,862 | ||||||||||||
Greater | Past Due | |||||||||||||||||||||||
than 89 | 90 Days | |||||||||||||||||||||||
30-59 | 60-89 | Days | or More | Loans on | ||||||||||||||||||||
Days Past | Days Past | Past | Total | and Still | Non- | |||||||||||||||||||
Due | Due | Due | Past Due | Accruing | accrual | |||||||||||||||||||
December 31, 2010 | (In thousands) | |||||||||||||||||||||||
Real estate loans: |
||||||||||||||||||||||||
Residential |
$ | 7,899 | $ | 1,634 | $ | 2,952 | $ | 12,485 | $ | | $ | 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 loans |
11 | 4 | 34 | 49 | | 34 | ||||||||||||||||||
Total |
$ | 9,211 | $ | 1,944 | $ | 8,424 | $ | 19,579 | $ | | $ | 12,360 | ||||||||||||
22
Table of Contents
The following is a summary of impaired loans with and without a valuation allowance
as of June 30, 2011 and December 31, 2010.
June 30, 2011 | December 31, 2010 | |||||||||||||||||||||||
Unpaid | ||||||||||||||||||||||||
Recorded | Principal | Related | Recorded | Unpaid Principal | Related | |||||||||||||||||||
Investment | Balance | Allowance | Investment | Balance | Allowance | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Impaired loans without a valuation
allowance: |
||||||||||||||||||||||||
Real estate loans: |
||||||||||||||||||||||||
Residential |
$ | 5,726 | $ | 5,726 | $ | | $ | 4,804 | $ | 4,804 | $ | | ||||||||||||
Commercial |
2,558 | 2,558 | | 2,393 | 2,393 | | ||||||||||||||||||
Construction |
2,171 | 2,171 | | 2,646 | 2,646 | | ||||||||||||||||||
Commercial business loans |
866 | 866 | | 277 | 277 | | ||||||||||||||||||
Installment and collateral loans |
7 | 7 | | 7 | 7 | | ||||||||||||||||||
Total |
11,328 | 11,328 | | 10,127 | 10,127 | | ||||||||||||||||||
Impaired loans with a valuation
allowance: |
||||||||||||||||||||||||
Real estate loans: |
||||||||||||||||||||||||
Residential |
1,513 | 1,758 | 245 | 1,016 | 1,172 | 156 | ||||||||||||||||||
Commercial |
| | | 576 | 597 | 21 | ||||||||||||||||||
Construction |
| | | | | | ||||||||||||||||||
Commercial business loans |
| | | 261 | 437 | 176 | ||||||||||||||||||
Installment and collateral loans |
21 | 22 | 2 | 22 | 27 | 5 | ||||||||||||||||||
Total |
1,534 | 1,780 | 247 | 1,875 | 2,233 | 358 | ||||||||||||||||||
Total |
$ | 12,862 | $ | 13,108 | $ | 247 | $ | 12,002 | $ | 12,360 | $ | 358 | ||||||||||||
23
Table of Contents
The following is a summary of average recorded investment in impaired loans with and
without a valuation allowance and interest income recognized on those loans for the three
months ended June 30, 2011 and 2010.
For the Three Months | For the Three Months | |||||||||||||||||||||||
Ended June 30, 2011 | Ended June 30, 2010 | |||||||||||||||||||||||
Interest | Interest | |||||||||||||||||||||||
Income | Income | |||||||||||||||||||||||
Average | Interest | Recognized | Average | Interest | Recognized | |||||||||||||||||||
Recorded | Income | on a Cash | Recorded | Income | on a Cash | |||||||||||||||||||
Investment | Recognized | Basis | Investment | Recognized | Basis | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Impaired loans without a valuation
allowance: |
||||||||||||||||||||||||
Real estate loans: |
||||||||||||||||||||||||
Residential |
$ | 4,836 | $ | 51 | $ | 51 | $ | 2,076 | $ | 19 | $ | 19 | ||||||||||||
Commercial |
1,782 | 36 | 36 | 4,032 | 5 | 5 | ||||||||||||||||||
Construction |
2,409 | | | 2,432 | | | ||||||||||||||||||
Commercial business loans |
330 | 8 | 8 | 184 | | | ||||||||||||||||||
Installment and collateral loans |
5 | | | 7 | | | ||||||||||||||||||
Total |
9,362 | 95 | 95 | 8,731 | 24 | 24 | ||||||||||||||||||
Impaired loans with a valuation
allowance: |
||||||||||||||||||||||||
Real estate loans: |
||||||||||||||||||||||||
Residential |
1,557 | 18 | 18 | 1,795 | 19 | 19 | ||||||||||||||||||
Commercial |
1,196 | | | 1,025 | | | ||||||||||||||||||
Construction |
| | | 2,486 | | | ||||||||||||||||||
Commercial business loans |
551 | 4 | 4 | 434 | | | ||||||||||||||||||
Installment and collateral loans |
29 | 1 | 1 | | | | ||||||||||||||||||
Total |
3,333 | 23 | 23 | 5,740 | 19 | 19 | ||||||||||||||||||
Total |
$ | 12,695 | $ | 118 | $ | 118 | $ | 14,471 | $ | 43 | $ | 43 | ||||||||||||
24
Table of Contents
The following is a summary of average recorded investment in impaired loans with and
without a valuation allowance and interest income recognized on those loans for the six
months ended June 30, 2011 and 2010.
For the Six Months | For the Six Months | |||||||||||||||||||||||
Ended June 30, 2011 | Ended June 30, 2010 | |||||||||||||||||||||||
Interest | Interest | |||||||||||||||||||||||
Income | Income | |||||||||||||||||||||||
Average | Interest | Recognized | Average | Interest | Recognized | |||||||||||||||||||
Recorded | Income | on a Cash | Recorded | Income | on a Cash | |||||||||||||||||||
Investment | Recognized | Basis | Investment | Recognized | Basis | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Impaired loans without a valuation
allowance: |
||||||||||||||||||||||||
Real estate loans: |
||||||||||||||||||||||||
Residential |
$ | 5,133 | $ | 122 | $ | 122 | $ | 2,066 | $ | 42 | $ | 42 | ||||||||||||
Commercial |
2,041 | 40 | 40 | 3,297 | 31 | 31 | ||||||||||||||||||
Construction |
2,329 | | | 2,387 | 2 | 2 | ||||||||||||||||||
Commercial business loans |
508 | 27 | 27 | 128 | 2 | 2 | ||||||||||||||||||
Installment and collateral loans |
5 | 1 | 1 | 7 | | | ||||||||||||||||||
Total |
10,016 | 190 | 190 | 7,885 | 77 | 77 | ||||||||||||||||||
Impaired loans with a valuation
allowance: |
||||||||||||||||||||||||
Real estate loans: |
||||||||||||||||||||||||
Residential |
1,401 | 20 | 20 | 1,550 | 41 | 41 | ||||||||||||||||||
Commercial |
766 | | | 822 | | | ||||||||||||||||||
Construction |
| | | 3,102 | | | ||||||||||||||||||
Commercial business loans |
237 | | | 304 | 2 | 2 | ||||||||||||||||||
Installment and collateral loans |
21 | 1 | 1 | | | | ||||||||||||||||||
Total |
2,425 | 21 | 21 | 5,778 | 43 | 43 | ||||||||||||||||||
Total |
$ | 12,441 | $ | 211 | $ | 211 | $ | 13,663 | $ | 120 | $ | 120 | ||||||||||||
Management has established the allowance for loan loss in accordance with GAAP for the
period ending June 30, 2011 based on the current risk assessment and level of loss that is
believed to exist within the portfolio. This level of reserve is deemed an appropriate
estimate of probable loan losses inherent in the loan portfolio as of June 30, 2011 based
upon the analysis conducted and given the portfolio composition, delinquencies, charge offs
and risk rating changes experienced during the first two quarters of 2011 and the three-year
evaluation period utilized in the analysis. Based on the qualitative assessment of the
portfolio and in thorough consideration of non-performing loans, management believes that
the allowance for loan losses properly supports the level of associated loss and risk.
25
Table of Contents
7. Federal Home Loan Bank Borrowings and Stock
The Bank is a member of the Federal Home Loan Bank of Boston (FHLBB). At June 30,
2011 and December 31, 2010, 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 June 30,
2011 and December 31, 2010, there were no advances outstanding under the line of credit.
On June 29, 2011, the Company announced that it completed a balance sheet restructuring
strategy. The Bank completed the repayment of $122.2 million of FHLBB advances with a
weighted average interest rate of 4.17%. The borrowings extinguished were bullet advances
with maturities in 2012 or later with rates that equaled or exceeded 3.00%. The repayment of
the FHLBB advances incurred a pre-payment of penalty of $8.9 million, or $5.8 million after
tax.
Subsequent to the receipt of funds from the recent second-step conversion, the Company was
investing excess liquidity in low yielding short-term duration investments. With continued
deposit growth and access to substantial liquidity though multiple sources, management felt
it was prudent to apply excess liquidity to pay-down high cost borrowings to ideally
position the balance sheet for growth in the current interest rate environment.
Contractual maturities and weighted average rates of outstanding advances from the FHLBB as
of June 30, 2011 and December 31, 2010 are summarized below:
June 30, 2011 | December 31, 2010 | |||||||||||||||
Weighted- Average |
Weighted- Average |
|||||||||||||||
Amount | Rate | Amount | Rate | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
2011 |
$ | 51,000 | 3.75 | % | $ | 73,320 | 3.70 | % | ||||||||
2012 |
7,000 | 4.09 | 37,400 | 4.21 | ||||||||||||
2013 |
| | 63,000 | 4.12 | ||||||||||||
2014 |
8,112 | 3.70 | 26,912 | 4.13 | ||||||||||||
2015 |
29,000 | 2.58 | 39,000 | 2.95 | ||||||||||||
Thereafter |
21,780 | 3.61 | 21,791 | 3.61 | ||||||||||||
$ | 116,892 | 3.45 | % | $ | 261,423 | 3.80 | % | |||||||||
At June 30, 2011, five advances totaling $30.0 million with interest rates ranging from
3.19% to 4.39% are callable. Advances are collateralized by first mortgage loans with an
estimated eligible collateral value of $354.3 million and $392.5 million at June 30, 2011
and December 31, 2010, 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.
26
Table of Contents
8. Share-Based Compensation Plans
The Company maintains and operates the Rockville Financial, Inc. 2006 Stock Incentive
Award Plan (the Plan) as approved by the Companys Board of Directors and stockholders.
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. Prior to the Companys second-step
stock offering effective March 3, 2011, the Plan allowed for the issuance of a maximum of
349,830 restricted stock shares and 874,575 stock options. After adjusting for the 1.5167
exchange ratio established as a result of the stock offering, as of June 30, 2011, there
were 24,406 restricted stock shares and 397,550 stock options that remain available for
future grants under the Plan. There were 6,166 restricted shares and 64,573 stock option
awards granted in 2011.
Total employee and Director share-based compensation expense recognized for stock options
and restricted stock was $266,000 and $379,000 with a related tax benefit recorded of
$93,000 and $133,000 for the three and six months ended June 30, 2011 of which Director
share-based compensation expense recognized (in the consolidated statement of operations as
other non-interest expense) was $16,000 and $31,000, respectively and officer share-based
compensation expense recognized (in the consolidated statement of operations as salaries and
benefit expense) was $251,000 and $347,000, respectively. The total charge of $379,000 for
the six months ended June 30, 2011 includes $71,000 related to 5,927 vested restricted
shares used for income tax withholding on behalf of certain executives which occurred in the
first six months of 2011.
Stock Options: The following table presents the activity related to stock options under the
Plan for the six months ended June 30, 2011:
Weighted Average | Aggregate | |||||||||||||||
Weighted | Remaining | Intrinsic | ||||||||||||||
Stock | Average | Contractual Term | Value | |||||||||||||
Options | Exercise Price | (in years) | (In thousands) | |||||||||||||
Stock options outstanding at December 31, 2010(1) |
846,107 | $ | 8.44 | |||||||||||||
Granted |
64,573 | 10.21 | ||||||||||||||
Exercised |
| | ||||||||||||||
Forfeited or expired |
12,918 | 7.45 | ||||||||||||||
Stock options outstanding at June 30, 2011 |
897,762 | $ | 8.58 | 6.4 | $ | 1,557 | ||||||||||
Options exercisable at June 30, 2011 |
727,516 | $ | 8.69 | 6.2 | $ | | ||||||||||
(1) | The December 31, 2010 number of shares and weighted average price have been restated to reflect an exchange rate of 1.5167 related to the Companys second-step stock offering. |
The aggregate fair value of vested options was $190,000 and $91,000 for the six months ended
June 30, 2011 and 2010, respectively. As of June 30, 2011, the unrecognized cost related to
the stock options awarded of $414,000 will be recognized over a weighted-average period of
3.0 years.
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. The following table
presents the activity for restricted stock for the six months ended June 30, 2011:
Weighted Average | ||||||||
Number | Grant-Date | |||||||
of Shares | Fair Value | |||||||
Unvested as of December 31, 2010(1) |
41,916 | $ | 7.27 | |||||
Granted |
6,166 | 10.54 | ||||||
Vested |
(20,870 | ) | 7.55 | |||||
Forfeited |
(3,031 | ) | 7.35 | |||||
Unvested as of June 30, 2011 |
24,181 | $ | 7.85 | |||||
(1) | The December 31, 2010 number of shares and weighted average price have been restated to reflect an exchange rate of 1.5167 related to the Companys second-step stock offering. |
The fair value of restricted shares that vested during the six months ended June 30, 2011
and 2010 was $157,000 and $124,000, respectively. There were 6,166 shares of restricted
stock granted during the six months ended June 30, 2011. As of June 30, 2011, there was
$157,000 of total unrecognized compensation cost related to unvested restricted stock which
was expected to be recognized over a weighted-average period of 2.6 years.
27
Table of Contents
Of the remaining unvested restricted stock, 2,501 shares will vest in 2011, 10,479 shares in
2012, 6,234 in 2013, and 3,734 in 2014 and 1,233 in 2015. All unvested restricted stock
shares are not expected to vest.
9. Income Taxes
As of June 30, 2011 and December 31, 2010, there were no material uncertain tax
positions related to federal and state income tax matters. 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 after December 31, 2006.
As of June 30, 2011 and December 31, 2010, the Company has not accrued any interest and
penalties related to uncertain tax positions.
10. Accumulated Other Comprehensive (Loss) Income
Components of accumulated other comprehensive (loss) income, net of taxes, consist of
the following:
Accumulated | ||||||||||||
Minimum | Net Unrealized Gain | Other | ||||||||||
Pension | on Available For | Comprehensive | ||||||||||
Liability | Sale Securities | Loss | ||||||||||
(In thousands) | ||||||||||||
December 31, 2010 |
$ | (5,315 | ) | $ | 4,033 | $ | (1,282 | ) | ||||
Change |
323 | (2,118 | ) | (1,795 | ) | |||||||
June 30, 2011 |
$ | (4,992 | ) | $ | 1,915 | $ | (3,077 | ) | ||||
The following table summarizes other comprehensive income and the related tax effects for
the six months ended June 30, 2011:
June 30, 2011 | ||||
(In thousands) | ||||
Net loss |
$ | (979 | ) | |
Unrealized losses on securities available for sale |
(3,259 | ) | ||
Income tax benefit |
1,141 | |||
Net unrealized gain on securities available for sale |
(2,118 | ) | ||
Benefit plans amortization |
497 | |||
Income tax provision |
(174 | ) | ||
Net benefit plans amortization |
323 | |||
Total other comprehensive loss, net of tax |
(1,795 | ) | ||
Total comprehensive loss |
$ | (2,774 | ) | |
11. Regulatory Matters
The Company and the Bank are subject to various regulatory capital requirements
administered by Federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional discretionary, actions by regulators
that, if undertaken, could have a direct material effect on the Companys financial
statements. The regulations require the Company and the Bank to 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. At June 30, 2011, the Bank exceeded all regulatory capital requirements and is
considered well capitalized under regulatory guidelines.
28
Table of Contents
The following is a summary of the Companys and the Banks regulatory capital amounts and
ratios as of June 30, 2011 and December 31, 2010 compared to the Federal Deposit Insurance
Corporations requirements for classification as a well-capitalized institution and for
minimum capital adequacy:
Minimum To Be | ||||||||||||||||||||||||
Minimum For | Well Capitalized | |||||||||||||||||||||||
Capital | Under | |||||||||||||||||||||||
Adequacy | Prompt Corrective | |||||||||||||||||||||||
Actual | Purposes | Action Provisions | ||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Rockville Bank: |
||||||||||||||||||||||||
June 30, 2011 |
||||||||||||||||||||||||
Total capital to risk weighted assets |
$ | 255,398 | 18.9 | % | $ | 108,162 | 8.0 | % | $ | 135,203 | 10.0 | % | ||||||||||||
Tier 1 capital to risk weighted assets |
239,711 | 17.7 | 54,080 | 4.0 | 81,120 | 6.0 | ||||||||||||||||||
Tier 1 capital to total average assets |
239,711 | 12.9 | 74,560 | 4.0 | 93,200 | 5.0 | ||||||||||||||||||
December 31, 2010 |
||||||||||||||||||||||||
Total capital to risk weighted assets |
$ | 167,793 | 12.7 | % | $ | 105,530 | 8.0 | % | $ | 131,913 | 10.0 | % | ||||||||||||
Tier 1 capital to risk weighted assets |
153,090 | 11.6 | 52,744 | 4.0 | 79,116 | 6.0 | ||||||||||||||||||
Tier 1 capital to total average assets |
153,090 | 9.1 | 67,515 | 4.0 | 84,394 | 5.0 | ||||||||||||||||||
Rockville Financial, Inc.: |
||||||||||||||||||||||||
June 30, 2011 |
||||||||||||||||||||||||
Total capital to risk weighted assets |
$ | 349,659 | 25.8 | % | $ | 108,463 | 8.0 | % | N/A | N/A | ||||||||||||||
Tier 1 capital to risk weighted assets |
333,972 | 24.6 | 54,216 | 4.0 | N/A | N/A | ||||||||||||||||||
Tier 1 capital to total average assets |
333,972 | 18.0 | 74,093 | 4.0 | N/A | N/A | ||||||||||||||||||
December 31, 2010 |
||||||||||||||||||||||||
Total capital to risk weighted assets |
$ | 181,178 | 13.7 | % | $ | 105,566 | 8.0 | % | N/A | N/A | ||||||||||||||
Tier 1 capital to risk weighted assets |
166,475 | 12.6 | 52,765 | 4.0 | N/A | N/A | ||||||||||||||||||
Tier 1 capital to total average assets |
166,475 | 10.4 | 64,090 | 4.0 | N/A | N/A |
Connecticut law restricts the amount of dividends that the Bank can pay based on
earnings for the current year and the preceding two years. As of June 30, 2011, $21.0
million is available for payment of dividends.
A reconciliation of the Companys capital to regulatory capital is as follows:
June 30, 2011 | December 31, 2010 | |||||||
(In thousands) | ||||||||
Total capital per financial statements |
$ | 332,125 | $ | 166,428 | ||||
Accumulated other comprehensive loss |
3,077 | 1,282 | ||||||
Intangible assets |
(1,149 | ) | (1,149 | ) | ||||
Servicing assets |
(81) | (86 | ) | |||||
Total Tier 1 capital |
333,972 | 166,475 | ||||||
Allowance for loan and other losses includible in Tier 2 |
||||||||
capital |
15,687 | 14,703 | ||||||
Total capital per regulatory reporting |
$ | 349,659 | $ | 181,178 | ||||
29
Table of Contents
Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
Forward-Looking Statements
This Form 10-Q 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:
| Local, regional and national business or economic conditions may differ from those expected. | ||
| 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. | ||
| The ability to increase market share and control expenses may be more difficult than anticipated. | ||
| Changes in laws and regulatory requirements (including those concerning taxes, banking, securities and insurance) may adversely affect us or our businesses. | ||
| 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. | ||
| Future changes in interest rates may reduce our profits which could have a negative impact on the value of our stock. | ||
| 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. | ||
| Changes in demand for loan products, financial products and deposit flow could impact our financial performance. | ||
| Strong competition within our market area may limit our growth and profitability. | ||
| We may not manage the risks involved in the foregoing as well as anticipated. | ||
| If our allowance for loan losses is not sufficient to cover actual loan losses, our earnings could decrease. | ||
| Our stock value may be negatively affected by federal regulations restricting takeovers. | ||
| Further implementation of our stock benefit plans could increase our costs, which will reduce our income. | ||
| 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. | ||
| 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 has resulted in dramatic regulatory changes that will affect the industry in general, and may impact the Companys competitive position in ways that cant be predicted at this time. |
Any forward-looking statements made by or on behalf of us in this Form 10-Q speak only as of
the date of this Form 10-Q. We do not undertake to update forward-looking statements to
reflect the impact of circumstances or
30
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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.
Overview
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 (See Note 1).
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 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 continuing to expand our commercial real estate and
commercial business lending activities and growing our deposit base.
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.
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. We believe that our most 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, income
taxes, pension and other post-retirement benefits and share-based compensation.
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 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. There are three components for the allowance for loan loss calculation:
General component:
The general component of the allowance for loan losses is based on historical loss
experience adjusted for qualitative factors stratified by the following loan segments:
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. In the second quarter of 2011 the
allowance for loan loss methodology was revised to utilize the most recent three year
loss history as compared to the previous five year loss history. This change was made as
management deemed that the shorter loss history period was most reflective of the level
of inherent loss existing under the current economic environment. As a result of the
change, the amount allocated to the general component of the reserve increased by
$159,000.
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:
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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.
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.
Installment and collateral 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.
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 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.
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Credit Quality: 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 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. 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.
Other-than-Temporary Impairment of Securities: On a quarterly basis, securities with
unrealized losses are reviewed as deemed appropriate to assess whether the decline in fair
value is temporary or other-than-temporary. It is assessed whether the decline in value is
from company-specific events, industry developments, general economic conditions, credit
losses on debt or other reasons. After the reasons for the decline are identified, further
judgments are required as to whether those conditions are likely to reverse and, if so,
whether that reversal is likely to result in a recovery of the fair value of the investment
in the near term. If it is judged not to be near term, a charge is taken which results in a
new cost basis. Declines in the fair value of available for sale securities below their cost
that are deemed to be other-than-temporary are reflected in earnings for equity securities
and for debt securities that have an identified credit loss. Losses on debt securities with
no identified credit loss component are reflected in other comprehensive income. In the
first six months of 2011, the Company experienced losses totaling $29,000 consisting of one
available for sale equity security which was deemed to be other-than-temporarily impaired.
Held to maturity securities are comprised of U.S. government-sponsored mortgage-backed
securities with no unrealized losses at June 30, 2011. Management believes the policy for
evaluating securities for other-than-temporary impairment is critical because it involves
significant judgments by management and could have a material impact on our net income.
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 an
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.
In 1998, the Company created and has since maintained a passive investment company
(PIC), as permitted by Connecticut law. At June 30, 2011, there were no material uncertain
tax positions related to federal and state income tax matters. 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 after December 31, 2006. If the state were to determine that
the PIC was not in compliance with statutory requirements, a material amount of taxes could
be due. As of June 30, 2011, management believes it is more likely than not that the
deferred tax assets will be
33
Table of Contents
realized through future reversals of existing taxable temporary differences. As of June 30,
2011, our net deferred tax asset was $7.7 million and there was no valuation allowance.
Pension and Other Post-retirement Benefits: We have a noncontributory defined benefit
pension plan that provides benefits for substantially all employees hired before January 1,
2005 who meet certain requirements as to age and length of service. The benefits are based
on years of service and average compensation, as defined. Our funding policy is to
contribute annually the maximum amount that could be deducted for federal income tax
purposes, while meeting the minimum funding standards established by the Employee Retirement
Security Act of 1974 (ERISA).
In addition to providing pension benefits, we provide certain health care and life insurance
benefits for retired employees. Participants or eligible employees hired before March 1993
become eligible for the benefits if they retire after reaching age 62 with five or more
years of service. A fixed percent of annual costs are paid depending on length of service at
retirement. We accrue for the estimated costs of these other post-retirement benefits
through charges to expense during the years that employees render service. The Company makes
contributions to cover its current benefits paid under this plan.
Management believes the policy for determining pension and other post-retirement benefit
expenses is critical because judgments are required with respect to the appropriate discount
rate, rate of return on assets, salary increases and other items. Management reviews and
updates the assumptions annually. If our estimate of pension and post-retirement expense is
too low we may experience higher expenses in the future reducing our net income. If our
estimate is too high, we may experience lower expenses in the future increasing our net
income.
Share-based Compensation: The Company accounts for stock options and restricted stock based
on the grant date fair value of the award. These costs are recognized over the period during
which an employee is required to provide services in exchange for the award, the requisite
service period (usually the vesting period). The Company expenses the grant date fair value
of the Companys stock options and restricted stock with a corresponding increase in equity
or a liability, depending on whether the instruments granted satisfy the equity or liability
classification criteria. The Company uses the Black-Scholes option valuation model to value
stock options. Determining the appropriate fair-value model and calculating the estimated
fair value of share-based awards at the grant date requires considerable judgment, including
estimating stock price volatility, expected option life, expected dividend rate, risk-free
interest rate and expected forfeiture rate. The Company develops estimates based on
historical data and market information which can change significantly over time.
Comparison of Operating Results for the Three and Six Months Ended June 30, 2011 and 2010
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, insurance commissions and other miscellaneous fees. The
Companys non-interest expense primarily consists of employee compensation and benefits,
occupancy and equipment, service bureau fees, 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 three and six months ended June 30, 2011 and 2010.
Income Statement Summary
For the Three Months | For the Six Months | |||||||||||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||||||||||
2011 | 2010 | Change | 2011 | 2010 | Change | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Net interest income |
$ | 13,770 | $ | 13,159 | $ | 611 | $ | 27,165 | $ | 26,557 | $ | 608 | ||||||||||||
Provision for loan losses |
754 | 909 | (155 | ) | 1,506 | 1,812 | (306 | ) | ||||||||||||||||
Non-interest income |
7,819 | 2,365 | 5,454 | 9,507 | 4,052 | 5,455 | ||||||||||||||||||
Non-interest expense |
20,708 | 9,392 | 11,316 | 36,652 | 19,027 | 17,625 | ||||||||||||||||||
Income (loss) before income taxes |
127 | 5,223 | (5,096 | ) | (1,486 | ) | 9,770 | (11,256 | ) | |||||||||||||||
Income tax provision (benefit) |
84 | 1,759 | (1,675 | ) | (507 | ) | 3,452 | (3,959 | ) | |||||||||||||||
Net income (loss) |
$ | 43 | $ | 3,464 | $ | (3,421 | ) | $ | (979 | ) | $ | 6,318 | $ | (7,297 | ) | |||||||||
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Net income decreased $3.4 million to $43,000 for the quarter ended June 30, 2011 compared to
$3.5 million for the same period last year. The decrease in net income primarily resulted
from the balance sheet restructuring that occurred in June 2011. The restructuring better
positions the Company to compete in the current rate environment while maintaining a
flexible liquidity position for future opportunities. The restructuring involved the
prepayment of $122.2 million of FHLBB borrowings which resulted in a pretax prepayment
penalty of $8.9 million recorded as non-interest expense. An increase in salary and
benefits expense of $1.8 million also contributed to the increase in non-interest expense
for the three months ended June 30, 2011 over June 30, 2010. The results of our first
quarter study on our infrastructure needs mandated the need for additional human resources
as the Company prepares to leverage its additional capital and accelerate our growth
following the second-step conversion completed in March 2011. Also, as part of the
restructuring, the Company sold $8.2 million of available for sale securities which resulted
in a pretax gain of $6.2 million. Net interest income increased $611,000 due to a $312,000
increase in interest and dividend income on earning assets coupled with a $299,000 decline
in the cost of funds.
Net income decreased by $7.3 million from the six months ended June 30, 2011 compared to the
same period last year and resulted in a loss of $979,000. The decrease in net income mainly
resulted from a contribution of $5.0 million, $3.3 million after tax, made by the Company to
the Rockville Bank Foundation, Inc. and the net effects of the balance sheet restructuring
described above. Salary and benefits expense was $12.3 million, an increase of $2.7 million
over the six months ended June 30, 2010 as the Company prepares for growth. The increase
also reflects expense incurred during the period relating to the retirement of an executive.
Net interest income increased $608,000 due to a $100,000 increase in income on earning
assets coupled with a $508,000 decline in the cost of funds.
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Net Interest Income Analysis
Average Balance Sheets, Interest and Yields/Costs: The following table sets 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. Loans held for sale and
non-accrual loans are included in the computation of interest-earning average balances, with
non-accrual loans carrying a zero yield. The yields set forth below include the effect of
deferred costs, discounts and premiums that are amortized or accreted to interest income or
expense.
Three Months Ended June 30, | ||||||||||||||||||||||||
2011 | 2010 | |||||||||||||||||||||||
Average | Interest and | Yield/ | Average | Interest and | Yield/ | |||||||||||||||||||
Balance | Dividends | Cost | Balance | Dividends | Cost | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Interest-earning assets: |
||||||||||||||||||||||||
Loans receivable, net (1) |
$ | 1,423,417 | $ | 17,481 | 4.91 | % | $ | 1,361,615 | $ | 17,357 | 5.10 | % | ||||||||||||
Investment securities |
186,620 | 1,422 | 3.05 | 122,359 | 1,260 | 4.12 | ||||||||||||||||||
Federal Home Loan Bank stock |
17,007 | 13 | 0.31 | 17,007 | | | ||||||||||||||||||
Other earning assets |
163,694 | 16 | 0.04 | 13,797 | 3 | 0.09 | ||||||||||||||||||
Total interest-earning assets |
1,790,738 | 18,932 | 4.23 | 1,514,778 | 18,620 | 4.92 | ||||||||||||||||||
Non-interest-earning assets |
76,215 | 67,480 | ||||||||||||||||||||||
Total assets |
$ | 1,866,953 | $ | 1,582,258 | ||||||||||||||||||||
Interest-bearing liabilities: |
||||||||||||||||||||||||
NOW and money market accounts |
$ | 359,100 | 334 | 0.37 | $ | 351,897 | 388 | 0.44 | ||||||||||||||||
Savings accounts (5) |
182,739 | 118 | 0.26 | 163,487 | 146 | 0.36 | ||||||||||||||||||
Time deposits |
561,638 | 2,445 | 1.74 | 481,623 | 2,319 | 1.93 | ||||||||||||||||||
Total interest-bearing deposits |
1,103,477 | 2,897 | 1.05 | 997,007 | 2,853 | 1.14 | ||||||||||||||||||
Advances from the Federal Home Loan Bank |
235,185 | 2,265 | 3.85 | 259,508 | 2,608 | 4.02 | ||||||||||||||||||
Total interest-bearing liabilities |
1,338,662 | 5,162 | 1.54 | % | 1,256,515 | 5,461 | 1.74 | % | ||||||||||||||||
Non-interest-bearing liabilities |
190,436 | 163,065 | ||||||||||||||||||||||
Total liabilities |
1,529,098 | 1,419,580 | ||||||||||||||||||||||
Stockholders equity |
337,855 | 162,678 | ||||||||||||||||||||||
Total liabilities and stockholders equity |
$ | 1,866,953 | $ | 1,582,258 | ||||||||||||||||||||
Net interest income |
$ | 13,770 | $ | 13,159 | ||||||||||||||||||||
Net interest rate spread (2) |
2.69 | % | 3.18 | % | ||||||||||||||||||||
Net interest-earning assets (3) |
$ | 452,076 | $ | 258,263 | ||||||||||||||||||||
Net interest margin (4) |
3.08 | % | 3.47 | % | ||||||||||||||||||||
Average interest-earning assets to average
interest-bearing liabilities |
133.77 | % | 120.55 | % |
(1) | Includes loans held for sale. | |
(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. | |
(5) | Includes mortgagors and investors escrow accounts. |
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Table of Contents
Six Months Ended June 30, | ||||||||||||||||||||||||
2011 | 2010 | |||||||||||||||||||||||
Average | Interest and | Yield/ | Average | Interest and | Yield/ | |||||||||||||||||||
Balance | Dividends | Cost | Balance | Dividends | Cost | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Interest-earning assets: |
||||||||||||||||||||||||
Loans receivable, net (1) |
$ | 1,419,050 | $ | 35,016 | 4.94 | % | $ | 1,359,526 | $ | 34,998 | 5.15 | % | ||||||||||||
Investment securities |
162,354 | 2,588 | 3.19 | 120,860 | 2,560 | 4.24 | ||||||||||||||||||
Federal Home Loan Bank stock |
17,007 | 26 | 0.31 | 17,007 | | | ||||||||||||||||||
Other earning assets |
160,362 | 31 | 0.04 | 7,316 | 3 | 0.08 | ||||||||||||||||||
Total interest-earning assets |
1,758,773 | 37,661 | 4.28 | 1,504,709 | 37,561 | 4.99 | ||||||||||||||||||
Non-interest-earning assets |
94,910 | 66,684 | ||||||||||||||||||||||
Total assets |
$ | 1,853,683 | $ | 1,571,393 | ||||||||||||||||||||
Interest-bearing liabilities: |
||||||||||||||||||||||||
NOW and money market accounts |
$ | 352,270 | 691 | 0.39 | $ | 346,874 | 793 | 0.46 | ||||||||||||||||
Savings accounts (5) |
175,077 | 237 | 0.27 | 156,983 | 274 | 0.35 | ||||||||||||||||||
Time deposits |
556,456 | 4,880 | 1.75 | 483,414 | 4,786 | 1.98 | ||||||||||||||||||
Total interest-bearing deposits |
1,083,803 | 5,808 | 1.07 | 987,271 | 5,853 | 1.19 | ||||||||||||||||||
Advances from the Federal Home Loan Bank |
245,015 | 4,688 | 3.83 | 262,882 | 5,151 | 3.92 | ||||||||||||||||||
Total interest-bearing liabilities |
1,328,818 | 10,496 | 1.58 | % | 1,250,153 | 11,004 | 1.76 | % | ||||||||||||||||
Non-interest-bearing liabilities |
245,777 | 160,141 | ||||||||||||||||||||||
Total liabilities |
1,574,595 | 1,410,294 | ||||||||||||||||||||||
Stockholders Equity |
279,088 | 161,099 | ||||||||||||||||||||||
Total liabilities and stockholders
equity |
$ | 1,853,683 | $ | 1,571,393 | ||||||||||||||||||||
Net interest income |
$ | 27,165 | $ | 26,557 | ||||||||||||||||||||
Net interest rate spread (2) |
2.70 | % | 3.23 | % | ||||||||||||||||||||
Net interest-earning assets (3) |
$ | 429,955 | $ | 254,556 | ||||||||||||||||||||
Net interest margin (4) |
3.09 | % | 3.53 | % | ||||||||||||||||||||
Average interest-earning assets to average
interest-bearing liabilities |
132.36 | % | 120.36 | % |
(1) | Includes loans held for sale. | |
(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. | |
(5) | Includes mortgagors and investors escrow accounts. |
37
Table of Contents
Rate-Volume Analysis
The following table sets forth the effects of changing rates and volumes on our net interest
income for the periods indicated. The rate column shows the effects attributable to changes
in rate (changes in rate multiplied by prior volume). The volume column shows the effects
attributable to changes in volume (changes in volume multiplied by prior rate). The net
column represents the sum of the prior columns. For purposes of this table, changes
attributable to changes in both rate and volume that cannot be segregated have been
allocated proportionately based on the changes due to rate and the changes due to volume.
Three Months Ended | Six Months Ended | |||||||||||||||||||||||
June 30, 2011 Compared to | June 30, 2011 Compared to | |||||||||||||||||||||||
June 30, 2010 | June 30, 2010 | |||||||||||||||||||||||
Increase (Decrease) | Increase (Decrease) | |||||||||||||||||||||||
Due To | Due To | |||||||||||||||||||||||
Volume | Rate | Net | Volume | Rate | Net | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Interest and dividend income: |
||||||||||||||||||||||||
Loans receivable |
$ | 772 | $ | (648 | ) | $ | 124 | $ | 1,500 | $ | (1,482 | ) | $ | 18 | ||||||||||
Securities interest, dividends &
income from other assets |
1,096 | (908 | ) | 188 | 2,080 | (1,998 | ) | 82 | ||||||||||||||||
Total earning assets |
1,868 | (1,556 | ) | 312 | 3,580 | (3,480 | ) | 100 | ||||||||||||||||
Interest expense: |
||||||||||||||||||||||||
NOW and money market accounts |
8 | (62 | ) | (54 | ) | 12 | (114 | ) | (102 | ) | ||||||||||||||
Savings accounts |
16 | (44 | ) | (28 | ) | 29 | (67 | ) | (38 | ) | ||||||||||||||
Time deposits |
362 | (236 | ) | 126 | 676 | (582 | ) | 94 | ||||||||||||||||
Total interest-bearing deposits |
386 | (342 | ) | 44 | 717 | (763 | ) | (46 | ) | |||||||||||||||
FHLBB Advances |
(237 | ) | (106 | ) | (343 | ) | (343 | ) | (119 | ) | (462 | ) | ||||||||||||
Total interest-bearing liabilities |
149 | (448 | ) | (299 | ) | 374 | (882 | ) | (508 | ) | ||||||||||||||
Change in net interest income |
$ | 1,719 | $ | (1,108 | ) | $ | 611 | $ | 3,206 | $ | (2,598 | ) | $ | 608 | ||||||||||
Net Interest Income: Net interest income before the provision for loan loss was $13.8
million for the three months ended June 30, 2011, compared to $13.2 million for the same
period in the prior year, an increase of $600,000. In the second quarter of 2011 interest
income on earning assets was $18.9 million, an increase of $312,000, yielding an average of
4.23%, a decrease of 69 basis points, as compared to the same period of 2010. Average
interest-bearing liabilities increased $82.1 million, or 6.5%, to $1.34 billion for the
three months ended June 30, 2011, costing an average of 1.54%, a decrease of 20 basis
points. Average time deposits increased $80.0 million in the second quarter of 2011. Average
NOW and money market account balances increased $7.2 million and average savings account
balances increased $19.3 million compared to the same period last year. In the second
quarter of 2011, the cost of interest-bearing liabilities was $5.2 million, a decrease of
$299,000 from the same period last year.
The increase in the average interest-earning assets reflects the net impact of the
second-step conversion in March 2011 and the balance sheet restructuring in June 2011. Loan
growth remained strong averaging $61.8 million higher in the second quarter of 2011 compared
to the second quarter of 2010. In the second quarter of 2011, average available for sale
securities increased $64.3 million over the same period last year due to the purchases made
possible by the additional funds gathered in the second-step conversion and despite the sale
of $8.2 million of securities in late June 2011 as part of the balance sheet restructuring
efforts. The increase in average interest-bearing liabilities reflects the net impact of
continued growth of average core interest-bearing deposits of $26.5 million and an $80.0
million increase in time deposits. Average FHLBB borrowings fell $24.3 million in the second
quarter 2011 from the same period last year as the Bank completed the repayment of
$122.2 million of FHLBB advances in June 2011. Average net interest-earning assets
increased by $193.8 million to $452.1 million. The Companys net interest margin decreased
39 basis points to 3.08% compared to 3.47% for the same period in the prior year. The
Companys net interest rate spread decreased 49 basis points to 2.69% due to a 69 basis
point reduction in the earning asset yield combined with a decrease in the cost of funds of
20 basis points.
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Table of Contents
Net interest income before the provision for loan loss was $27.2 million for the six months
ended June 30, 2011, compared to $26.6 million for the same period in the prior year. The
increase in net interest income of $608,000, or 2.3%, is primarily due to a $175.4 million, or 68.9%, increase in average net
interest-earning assets, partially offset by a 44 basis point decrease in the Companys net
interest margin to 3.09% as funds acquired through our second-step conversion were initially
placed in relatively low-yielding assets. Average earning assets increased by $254.1
million, or 16.9%, to $1.76 billion while average interest-bearing liabilities increased
$78.7 million, or 6.3% to $1.33 billion due to our yearlong campaign to raise deposits. The
increase in the average net interest-earning assets reflects the growth obtained through the
second-step conversion and the net impact of continued strong loan growth funded primarily
by time deposits. Our net interest rate spread decreased 53 basis points to 2.70% from
3.23% for the same period in the prior year due to a 71 basis point decrease in our average
earning asset yield resulting from the reinvestment of the cash received in the second-step
conversion in low-yielding assets which was partially offset by an 18 basis point decline in
our average cost of funds.
Interest and Dividend Income: Interest and dividend income increased $312,000, or 1.7%, to
$18.9 million for the three months ended June 30, 2011 from $18.6 million for the same
period in the prior year. An increase of $64.3 million of average available for sale
securities offset by a 107 basis point decline in the yield on those securities accounted
for $162,000 additional interest and dividend income on investment securities. Interest
income on loans receivable increased $124,000, or 0.7%, to $17.5 million. The increase in
loan interest income was due to growth in average net loans for the period of $61.8 million,
or 4.5% which was offset by a 19 basis point reduction on average loan yields. The average
yield on interest-earning assets is primarily impacted by changes in market interest rates
as well as changes in the volume and relative mix of interest-earning assets. The Companys
yield on interest-earning assets decreased 69 basis points to 4.23% from 4.92%. The decrease
in the average yield was attributable to the reinvestment of the cash received in the
second-step conversion to low-yielding investments and the addition of new loans and
investments at lower yields than the second quarter last year and adjustable rate loans
repricing downward. The effect of the lowering rates on the Companys portfolio is delayed
for adjustable-rate residential mortgage loans, with interest rates which adjust 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. The prime rate used as an index
to re-price various commercial and home equity adjustable loans remained unchanged at 3.25%
for the three months ended June 30, 2011 compared to the same period last year. The one-year
Constant Maturity Treasury Bill Index used to re-price adjustable rate residential mortgages
decreased 12 basis points during the past year to 0.19% at June 30, 2011 compared to 0.31%
at June 30, 2010.
For the six months ended June 30, 2011, interest and dividend income increased $100,000, or
0.3%, to $37.7 million from $37.6 million for the same period in the prior year. The
Companys average interest-earning assets grew $254.1 million while the yield on
interest-earning assets decreased 71 basis points to 4.28% from 4.99%. An increase of $41.5
million of average available for sale securities offset by a 105 basis point decline in
yield accounted for a $28,000 increase in interest and dividend income. Interest income on
loans receivable increased $18,000, or 0.1%, to $35.0 million. Dividends earned on FHLBB
stock totaled $26,000 year to date since the reinstatement of the dividend in the first
quarter of this year. Other earning assets, consisting mainly of overnight funds, earned
$28,000 year to date. Average net loans totaled $1.42 billion, $59.5 million higher in the
second quarter of 2011 than the same period last year, however the 21 basis point reduction
on average loan yields offset most of the expected revenue increase.
Interest Expense: Interest expense for the three months ended June 30, 2011 decreased
$299,000, or 5.5%, to $5.2 million from $5.5 million compared to the same period last year.
The savings resulted from a decrease of 20 basis points paid on average interest-bearing
liabilities which was offset by an $82.1 million, or a 6.5%, increase in average
interest-bearing liabilities. The decrease in the cost of funds was primarily due to the
impact that the sustained low interest rate environment had on the Companys
interest-bearing deposits during the second quarter of 2011 resulting in a reduction in the
cost of funds of 9 basis points. Average balances on interest-bearing deposits rose to $1.10
billion, an increase of $106.5 million as the growth in time deposits accounted for $80.0
million of the total growth. NOW and money market accounts and savings accounts increased
$7.2 million and $19.3 million, respectively. Generally, management would prefer to fund
growth with deposits instead of wholesale borrowings. Current market conditions are such
that the growth in deposits and the additional capital received from the stock conversion
allowed the Company to reduce its FHLBB borrowings by $122.2 million to $116.9 million at
June 30, 2011 eliminating annualized pretax interest expense of $5.4 million and reducing
total cost of funds going forward. Average outstanding advances from the Federal Home Loan
Bank were $235.2 million. The interest rate on these borrowings averaged 3.85%, a decrease
of 17 basis points compared to the average rate of 4.02% last year.
Interest expense for the six months ended June 30, 2011 decreased $508,000, or 4.6%, to
$10.5 million from $11.0 million compared to the same period in the prior year. The savings
resulted from a decrease of 18 basis
39
Table of Contents
points paid on average interest-bearing liabilities in combination with a $78.7 million, or a 6.3%, increase in average interest-bearing
liabilities. The decrease in the cost of funds was primarily due to the impact of having
$17.9 million fewer average balances in FHLBB borrowings coupled with a drop of 9 basis
points in the cost of borrowings. Average balances on interest-bearing deposits rose to
$1.08 billion, an increase of $96.5 million, as the growth in time deposits totaled $73.0
million, NOW and money market accounts increased $5.4 million and savings accounts grew
$18.1 million. Average outstanding advances from the Federal Home Loan Bank were $245.0
million with an average cost of 3.83%.
Provision for Loan Losses: The allowance for loan losses is maintained at a level
management determined to be appropriate to absorb estimated credit losses that are probable
at the dates of the financial statements. Management evaluates the adequacy of the allowance
for loan losses on a quarterly basis and charges any provision for loans losses needed to
current operations. The assessment considers historical loss experience, the types of loans
and the amount of loans in the loan portfolio, adverse situations that may affect the
borrowers ability to repay, estimated value of any underlying collateral, and prevailing
economic conditions. Based on our evaluation of these factors, management recorded
provisions of $754,000 for the three months ended June 30, 2011, as compared to $909,000 for
the same period in the prior year primarily due to continued assessment of estimated
exposure on impaired loans. The repayment of these impaired loans is largely dependent upon
the sale and value of collateral that may be impacted by current real estate conditions. At
June 30, 2011, the allowance for loan losses totaled $15.3 million, which represented 1.06%
of total loans and 119.18% of non-performing loans compared to an allowance for loan losses
of $14.3 million, which represented 1.00% of total loans and 115.79% of non-performing loans
as of December 31, 2010.
Potential problem loans: The Bank performs an internal analysis of the loan portfolio in
order 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 listed on the
Companys watchlist and 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. In addition,
the Company maintains a listing of criticized loans consisting of Substandard and Doubtful
loans which are transferred to the Special Assets area which totaled $30.6 million at June
30, 2011.
The Company closely monitors the watchlist for signs of deterioration to mitigate the growth
in non-accrual loans. At June 30, 2011, watchlist loans totaled $58.8 million, of which
$45.9 million are not considered impaired.
Non-interest Income: The Company has the following sources of non-interest income: banking
service charges on deposit accounts, bank-owned life insurance, mortgage servicing income,
loan fee income, gains on sales of securities, derivative financial instruments and
brokerage and insurance fees from Infinex, Inc., the Banks on-premise provider of
non-deposit investment services.
Non-interest income increased by $5.5 million to $7.8 million for the quarter ended June 30,
2011, compared to $2.4 million for the same period last year due to the gain of $6.2 million
on the sale of $8.2 million of securities recognized as part of the balance sheet
restructuring plan. Service charges and fees decreased $310,000 to $1.7 million for the
quarter. The decrease was mainly attributable to a $409,000 reduction in loan fee income
generated by Rockville Bank Mortgage, Inc. due to slowing loan demand and a net reduction
in the collection of insufficient funds fees of $58,000 resulting from a policy change
implemented late last year. Partially offsetting these was an increase in ATM fees of
$80,000 and loan servicing income of $87,000. During the second quarter of 2011, the Company
did not sell any fixed rate residential mortgages in the secondary market as it did in the
prior year resulting in a reduction of net gains from the sale of loans of $364,000.
Additionally, the Companys other non-interest income fell $74,000 due to the loss on the
disposal of fixed assets in the Companys Vernon Connecticut branch totaling $107,000, which
was razed due to winter storm damage and will be reconstructed by the fourth quarter of
2011, and which was offset by lower losses on the sale of other real estate owned properties
of $30,000. There was no other-than-temporary impairment of securities in the second quarter
of either year.
Non-interest income increased by $5.5 million to $9.5 million for the six months ended June
30, 2011, compared to $4.1 million for the same period last year. There were gains from the
sale of securities of $6.2 million in 2011, primarily the result of the balance sheet
restructuring, compared to $188,000 of gains in 2010, an increase of $6.0 million. Service
charges and fees increased $44,000 primarily due to increases in ATM fees of $163,000 and an
increase of $62,000 in loan servicing income offset by reductions totaling $60,000 of loan
fee income generated by Rockville Bank Mortgage, Inc., $23,000 of reverse mortgage
commissions and $100,000 in insufficient fund fees. Gains on the sale of loans decreased
$465,000 in the first six months of 2011 and the loss on the disposal of fixed assets
increased $109,000 compared to the same period last year. There was $29,000 of
other-than-temporary impairment of securities in 2011 compared to none in 2010.
40
Table of Contents
Non-interest Expense: The following table summarizes non-interest expense for the three
and six months ended June 30, 2011 and 2010:
Three Months | Six Months | |||||||||||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||||||||||
2011 | 2010 | Change | 2011 | 2010 | Change | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Salaries and employee benefits |
$ | 6,613 | $ | 4,831 | $ | 1,782 | $ | 12,284 | $ | 9,621 | $ | 2,663 | ||||||||||||
Service bureau fees |
1,128 | 987 | 141 | 2,187 | 1,986 | 201 | ||||||||||||||||||
Occupancy and equipment |
1,100 | 1,055 | 45 | 2,266 | 2,182 | 84 | ||||||||||||||||||
Professional fees |
498 | 368 | 130 | 1,182 | 758 | 424 | ||||||||||||||||||
Marketing and promotions |
441 | 397 | 44 | 765 | 671 | 94 | ||||||||||||||||||
FDIC assessments |
506 | 401 | 105 | 1,020 | 801 | 219 | ||||||||||||||||||
Other real estate owned |
15 | 99 | (84 | ) | 74 | 467 | (393 | ) | ||||||||||||||||
Contribution to Rockville Bank
Foundation, Inc. |
| | | 5,043 | | 5,043 | ||||||||||||||||||
Loss on extinguishment of debt |
8,914 | | 8,914 | 8,914 | | 8,914 | ||||||||||||||||||
Other |
1,493 | 1,254 | 239 | 2,917 | 2,541 | 376 | ||||||||||||||||||
Total non-interest expense |
$ | 20,708 | $ | 9,392 | $ | 11,316 | $ | 36,652 | $ | 19,027 | $ | 17,625 | ||||||||||||
Non-interest expense increased $11.3 million, or 120.5%, to $20.7 million for the three
months ended June 30, 2011 compared to $9.4 million for the same period in the prior year.
The $8.9 million penalty paid on the prepayment of FHLBB advances which was completed as
part of the Companys balance sheet restructuring plan accounted for 78.8% of the
non-interest expense increase in the second quarter 2011 compared to the second quarter
2010. Salary and employee benefits expense increased $1.8 million which was attributable to
rebuilding the Information Technology organization, adding to and strengthening the
risk-management organization, and expanding the commercial lending staff as the Company
prepares to leverage our capital and support growth following the second-step conversion
completed in March 2011. Included in the $1.8 million increase of salary and employee
benefits expense is the recognition of $830,000 of retirement expenses to a former executive
effective June 30, 2011, and contractual payments of a $100,000 cash bonus to the current
Chief Executive Officer and approximately an additional $120,000 of either sign-on bonuses
to new executives or final cash payments to the former Chief Executive Officer. The number
of full-time equivalent employees increased to 252 as of June 30, 2011 compared to 242 as of
June 30, 2010. The majority of the increase was from the creation of new positions which
included a Chief Risk Officer, two commercial lenders, an internal audit manager, a Bank
Secrecy Act officer, two retail branch administration officers, an information security
officer, and a treasury officer. Service bureau fees increased $141,000 as the result of
higher ATM servicing fees of $41,000, other service bureau fees of $94,000 and wide-area
network servicing fees of $6,000. Occupancy and equipment expense increased $45,000 mainly
due to increases in utilities and maintenance expense which was offset by decreases in rent
and depreciation expense. Professional fees increased $130,000, of which, $73,000 was for
audit and legal fees and $57,000 for consulting fees. $80,000 of the increase was mainly
attributable to the retention of consultants to perform a bank-wide efficiency and human
capital study to evaluate infrastructure and risk management needs as the Company prepares
to leverage our capital following the second-step conversion from a Mutual Holding Company
status. Marketing and promotions expense increased $44,000 mainly due to the introduction
and succession planning process of the Companys new chief executive officer and increased
advertising to take advantage of competitive opportunities. Other real estate owned expense
decreased $84,000 for the quarter ended June 30, 2011 which was consistent with the decrease
in the level of foreclosed assets.
Non-interest expense increased $17.6 million, or 92.6%, to $36.7 million for the six months
ended June 30, 2011 compared to $19.0 million for the same period in the prior year. The
$8.9 million FHLBB prepayment penalty to the FHLBB and the $5.0 million contribution to the
Rockville Bank Foundation, Inc. accounted for 79.2% of the increase. In addition to these
nonrecurring expenses, salary and employee benefits expense increased $2.3 million which is
related to the aforementioned additions to staff in preparation for the Banks growth plans,
the aforementioned executive retirement, additional bonus and obligation payments
to the current Chief Executive Officer, William H. W. Crawford, IV, of $300,000 and to the
former Chief Executive Officer, William J. McGurk, of $200,000 during the period ended March
31, 2011, and to some extent new expenses related to the newly created Chief Risk Officer
position, and the head Information Technology. Service bureau fees increased $201,000,
primarily as the result of higher ATM servicing fees of $65,000 and service bureau fees of
$129,000. Occupancy and equipment expense increased $84,000 mainly due to increases in
utilities and maintenance expense which was offset by decreases in depreciation expense.
Professional fees increased $424,000 due to
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Table of Contents
increases in consulting fees of $359,000 and audit and legal fees of $65,000 which were
necessary to consider and evaluate the infrastructure and risk management needs to proceed
with the Banks growth plans.
Marketing and promotions expense increased $94,000 mainly due to the introduction of the
Companys new chief executive officer and increased advertising to take advantage of
competitive opportunities. FDIC assessments increased $219,000 as a result of the growth in
deposit balances. Other real estate owned expense decreased $393,000.
Income Tax Provision:
Income tax provision decreased $1.7 million to $84,000 for the three months ended June 30,
2011 as compared to $1.8 million for the same period in the prior year. Year to date income
tax benefit is $507,000 due to the loss experienced in the first six months of 2011. Income
taxes are provided on an interim basis using the estimated annual effective tax rate. The
effective tax rate was 34.1% and 35.3% of pretax income for the six months ended June 30,
2011 and 2010, respectively.
The decrease in the effective tax rate was attributable to an increase in state income tax.
Due to increased activity in Massachusetts, the Company began filing Massachusetts
corporation income tax return for the calendar year 2010. The Company recorded a federal
income tax benefit of 35.4% and a provision for state income taxes of 1.3% providing an
effective tax rate of 34.1% for the period ended June 30, 2011.
Comparison of Financial Condition at June 30, 2011 and December 31, 2010
Summary: The Companys total assets increased $68.5 million, or 4.1%, to $1.75 billion
at June 30, 2011, from $1.68 billion at December 31, 2010, primarily due to the second-step
conversion completed on March 3, 2011 which raised $168.0 million. Proceeds from the
conversion were used to purchase short-term investments, available for sale securities and
to pay off FHLBB advances, and on June 29, 2011, the Bank completed the repayment of $122.2
million of FHLBB advances with a weighted average interest rate of 4.17%. Additionally, the
Bank also sold approximately $14.5 million in available-for-sale equity investments.
Cash and cash equivalents increased to $80.7 million, or 33.0%, at June 30, 2011 from $60.7
million at December 31, 2010. Available for sale securities increased to $153.8 million, or
22.6%, at June 30, 2011 from $125.4 million at year end. Net loans receivable increased
$20.1 million, or 1.4%, to $1.43 billion at June 30, 2011 compared to December 31, 2010.
Compared to the second quarter of 2010, average earning assets increased by $254.1 million,
or 16.9%, to $1.76 billion mainly due to the additional $168.0 million in net proceeds
received from the Companys stock conversion in the first quarter of 2011 and $59.5 million
in loan growth. Deposits increased $57.6 million, or 4.7%, from December 31, 2010, to $1.28
billion at June 30, 2011. Interest-bearing deposits grew $59.5 million in the first six
months of 2011 to $1.11 billion from $1.05 billion at December 31, 2010.
Non-interest-bearing deposits totaled $166.9 million at June 30, 2011, a decrease of $1.9
million from year end 2010. Federal Home Loan Bank advances decreased $144.5 million, or
55.3%, to $116.9 million at June 30, 2011 from $261.4 million at December 31, 2010.
Total stockholders equity increased $165.7 million, or 99.6%, to $332.1 million at June 30,
2011 compared to $166.4 million at December 31, 2010. This was due to the capital raised in
the second-step conversion completed in the first quarter of 2011. As a result, common stock
increased $158.5 million, net of retired treasury shares totaling $9.5 million, and
additional paid-in capital increased $10.0 million. In addition, the level of unallocated
ESOP shares increased to $10.0 million from $3.5 million as additional shares were purchased
for the ESOP thereby reducing equity by $6.6 million. Also reducing total equity was the
reduction in retained earnings of $4.1 million due to the operating loss and the payment of
dividends in 2011 and an increase of $1.8 million in the accumulated other comprehensive
loss.
Investment Securities: At June 30, 2011, the Companys investment portfolio was $165.2
million, or 9.5% of total assets, consisted of available for sale securities of $153.9
million and held to maturity securities of $11.3 million. The increase in available for sale
securities of $28.4 million as compared to December 31, 2010, was mainly due to the purchase
of $39.3 million of government-sponsored enterprise mortgage-backed investments and $16.8
million of U.S. Government-sponsored enterprise investments offset by the proceeds received
from the sale of $14.5 million of equity securities and Fannie Mae and Freddie Mac preferred
securities at a gain of $6.2 million, $8.6 million of principal payments of
government-sponsored enterprise mortgage-backed securities, $7.5 million of U.S.
Government-sponsored enterprise mortgage-backed investments which were called and a
reduction of the unrealized gains on available for sale securities of $3.3 million. At June
30, 2011, the available for sale securities portfolio was comprised of $44.4 million in U.S.
Government and U.S. Government-sponsored enterprise securities, $4.5 million in corporate
bonds, $101.6 million in Government-sponsored residential mortgage-backed securities and
$3.3 million in marketable equity securities. The decrease in the net unrealized gains on
investment securities available for sale largely reflects the common and preferred equity
sales in the quarter and to a lesser degree, the effect of decreasing long-term investment
market rates had on the debt securities portfolio during the first three months of 2011. The
held to maturity securities portfolio had an
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amortized cost of $11.3 million comprised of Government-sponsored residential
mortgage-backed securities that had a fair market value of $12.3 million at June 30, 2011.
Principal payments totaling $2.4 million were made on held to maturity securities during the
six months ended June 30, 2011; there were no purchases.
Lending Activities: Net loans receivable increased $20.1 million to $1.43 billion at June
30, 2011. The increase was primarily due to increases in commercial real estate loans of
$19.5 million and commercial business loans of $5.3 million. Residential real estate loans
increased $4.1 million to $724.1 million as demand for new borrowings has decreased in 2011
compared to last year. Real estate construction loans decreased $6.9 million to $71.8
million from year end. As of June 30, 2011 and December 31, 2010, commercial business loans
consisted of $18.7 million and $19.6 million, respectively, of loans fully guaranteed by the
United States Department of Agriculture.
Deposits: Deposits increased $57.6 million to $1.28 billion at June 30, 2011 compared to
$1.22 billion at December 31, 2010. At June 30, 2011, non-interest-bearing deposits were
$166.9 million, a decrease of $1.9 million and interest-bearing deposits were $1.11 billion,
an increase of $59.5 million, compared to December 31, 2010. Money market and investment
savings account balances were $238.5 million, an increase of $11.5 million, regular savings
and club account balances were $181.3 million, an increase of $19.0 million, and NOW account
balances were $128.9 million, an increase of $11.6 million as compared to December 31, 2010.
Certificates of deposit balances were $561.2 million, an increase of $17.4 million in the
first six months of 2011 compared to year end. At June 30, 2011, core deposits were $715.7
million, an increase of $40.2 million compared to December 31, 2010. The Company has been
promoting competitive rate shorter-term time deposits and money market accounts in response
to the competition within our marketplace to maintain existing market share and to fund loan
growth and reduce borrowings.
Liquidity and Capital Resources: The Company maintains liquid assets at levels the Company
considers adequate to meet its liquidity needs. The Company adjusts its liquidity levels to
fund loan commitments, repay its borrowings, fund deposit outflows, pay escrow obligations
on all items in the loan portfolio and to fund operations. The Company also adjusts
liquidity as appropriate to meet asset and liability management objectives.
The Companys primary sources of liquidity are deposits, amortization and prepayment of
loans, the sale in the secondary market of loans held for sale, maturities and sales of
investment securities and other short-term investments, periodic pay downs of
mortgage-backed securities, and earnings and funds provided from operations. While scheduled
principal repayments on loans are a relatively predictable source of funds, deposit flows
and loan prepayments are greatly influenced by market interest rates, economic conditions,
and rates offered by our competition. The Company sets the interest rates on our deposits to
maintain a desired level of total deposits. In addition, the Company invests excess funds in
short-term interest-earning assets, which provide liquidity to meet lending requirements.
A portion of the Companys liquidity consists of cash and cash equivalents, which are a
product of our operating, investing and financing activities. At June 30, 2011, $80.7
million of the Companys assets were invested in cash and cash equivalents compared to $60.7
million at December 31, 2010. The Companys primary sources of cash are principal repayments
on loans, proceeds from the calls and maturities of investment securities, increases in
deposit accounts, proceeds from residential loan sales and advances from the Federal Home
Loan Bank of Boston.
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 June 30, 2011, the Company had $116.9 million in advances from the Federal Home
Loan Bank of Boston and an additional available borrowing limit of $237.4 million based on
collateral requirements of the Federal Home Loan Bank of Boston. Internal policies limit
borrowings to 30% of total assets, or $524.0 million at June 30, 2011.
At June 30, 2011, the Company had outstanding commitments to originate loans of $72.9
million and unfunded commitments under construction loans, lines of credit and stand-by
letters of credit of $288.9 million. At June 30, 2011, time deposits scheduled to mature in
less than one year totaled $405.4 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 its
deposits are not retained by the Company, it will have to utilize other funding sources,
such as Federal Home Loan Bank of Boston advances in order to maintain its level of assets.
Alternatively, we would reduce our level of liquid assets, such as our cash and cash
equivalents in order to meet funding needs. In addition, the cost of such deposits may be
significantly higher if market interest rates are higher or there is an increased amount of
competition for deposits in our market area at the time of renewal.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
General: The majority of the Companys assets and liabilities are monetary in nature.
Consequently, our most significant form of market risk is interest rate risk. The Companys
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, the 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 the Companys 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.
The Company has 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) reducing and
shortening the expected average life of the investment portfolio, and (iii) periodically
lengthening the term structure of our borrowings from the Federal Home Loan Bank of Boston.
Additionally, from the first quarter of 2009 through the first quarter of 2011, the Company
sold fixed rate residential mortgages to the secondary market. No sales to the secondary
market were made in the second quarter of 2011 due to market conditions. 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 an estimate of the Companys 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. The Company utilizes 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. The Companys most recent simulation uses
projected repricing of assets and liabilities at June 30, 2011 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 it holds, rising or falling
interest rates may have a significant impact on the actual prepayment speeds of the
Companys mortgage related assets that may in turn affect its interest rate sensitivity
position. When interest rates rise, prepayment speeds slow and the average expected life of
the Companys assets would tend to lengthen more than the expected average life of its
liabilities and therefore would most likely result in a decrease to the Companys asset
sensitive position.
Percentage Decrease | ||||
in Estimated | ||||
Net Interest Income | ||||
Over 12 Months | ||||
300 basis point increase in rates |
(1.24 | %) | ||
50 basis point decrease in rates |
(1.55 | ) |
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, the Companys 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 slight asset-sensitivity of the Companys balance sheet, income
is projected to decrease more 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 June 30, 2011, income at risk
(i.e., the change in net interest income) decreased 1.24% and decreased 1.55% based on a 300
basis point average increase or a 50
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basis point average decrease, respectively. At June 30, 2011, return on assets is modeled to
decrease by 5 basis points and decrease 2 basis points based on a 300 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.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures: Our disclosure controls and
procedures are designed to ensure that information the Company must disclose in its reports
filed or submitted under the Securities Exchange Act of 1934, as amended (the Exchange
Act), is recorded, processed, summarized, and reported on a timely basis. Our management
has evaluated, with the participation and under the supervision of our chief executive
officer (CEO) and chief financial officer (CFO), the effectiveness of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as
of the end of the period covered by this report. Based on this evaluation, our CEO and CFO
have concluded that, as of such date, the Companys disclosure controls and procedures are
effective in ensuring that information relating to the Company, including its consolidated
subsidiaries, required to be disclosed in reports that it files under the Exchange Act is
(1) recorded, processed, summarized and reported within time periods specified in the SECs
rules and forms, and (2) accumulated and communicated to our management, including our CEO
and CFO, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Controls: During the quarter under report, there was no change in the
Companys internal control over financial reporting (as defined in Rule 13a-15(f) under the
Exchange Act ) that has materially affected, or is reasonably likely to materially affect,
the Companys internal control over financial reporting.
Part II OTHER INFORMATION
Item 1. Legal Proceedings
The Company is party to various litigation matters arising in the ordinary course of
business. Although the ultimate resolution of these matters cannot be determined at this
time, management of the Company does not believe that such matters, individually or in the
aggregate, will have a material adverse effect on the future results of operations or
financial condition of the Company.
Item 1A. Risk Factors
Our success greatly depends on the contributions of our senior management and other key
personnel. In April, 2011 William J. McGurk, our longstanding President and Chief Executive
Officer, retired as scheduled. Mr. McGurk remains on our Board of Directors until his term
expires in 2013 and continues to serve in a consulting role. 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 2013 when his current term expires. In January 2011, the
Company announced Mr. William H.W. Crawford, IV as Mr. McGurks replacement which became
effective on Mr. McGurks retirement. While we will strive to make this transition as smooth
as possible, the Companys business or operations may be disrupted due to the transition of
CEO responsibilities and any other management changes as the Company adjusts to new
leadership. In addition, our success will depend on our ability to recruit and retain
additional highly-skilled personnel.
There have been no other material changes in the Risk Factors previously disclosed in Item
1A of the Companys annual report on Form 10-K for the period ended December 31, 2010.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Repurchase of Equity Securities During 2011:
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). These shares were cancelled during the
conversion; Rockville Financial, Inc. is prohibited from purchasing its shares for one year
following the conversion except for limited purposes.
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Item 3. Defaults Upon Senior Securities
None
Item 4. Removed and Reserved
Item 5. Other Information
None
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Item 6. Exhibits
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, Inc. on September 16, 2010) | |||||
3.1 | Certificate of Incorporation of Rockville Financial, Inc. (incorporated herein by reference to Exhibit 3.1 to the Registration Statement on the Form S-1 filed for Rockville Financial, Inc. on September 16, 2010) | |||||
3.1.1 | Amendment of Certificate of Incorporation of Rockville Financial, Inc. (incorporated herein by reference to Exhibit 3.1.1 to the Registration Statement on the Form S-1 filed for Rockville Financial, Inc. on September 16, 2010) | |||||
3.2 | Bylaws of Rockville Financial, Inc. (incorporated herein by reference to Exhibit 3.2 to the Registration Statement on the Form S-1 filed for Rockville Financial, Inc. on September 16, 2010) | |||||
4.1 | Form of Common Stock Certificate of Rockville Financial, Inc. (incorporated herein by reference to Exhibit 4.1 to the Registration Statement on the Form S-1 filed for Rockville Financial, Inc. on September 16, 2010) | |||||
10.1 | 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 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) | |||||
10.2.1 | Supplemental Executive Retirement Agreement of Rockville Bank for John T. Lund effective December 6, 2010 (incorporated by reference to Exhibit 10.3.1 to the Companys Annual Report on Form 10-K for the year ended December 31, 2010 filed on March 10, 2011) | |||||
10.2.2 | Employment Agreement as amended and restated by and among Rockville Financial, Inc., Rockville Bank and John T. 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) | |||||
10.2.3 | Change-in-Control and Restricted Covenant Agreement by and among Rockville Financial, Inc., Rockville Bank and John T. Lund, effective January 2, 2009 (incorporated herein by reference to Exhibit 10.3 to the Annual Report on Rockville Financial, Inc.s Form 10-K for the year ended December 31, 2008 filed on March 11, 2009 (File No. 000-51239)) | |||||
10.3 | Rockville Financial, Inc., the Bank and Christopher E. Buchholz Retirement Agreement and Release (the Agreement) as of June 30, 2011 (incorporated herein by reference to Exhibit 10.1 to the Current Report on the Companys Form 8-K filed on July 11, 2011) | |||||
10.4 | 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) | |||||
10.4.1 | 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) | |||||
10.4.2 | Supplemental Executive Retirement Agreement of Rockville Bank for Richard J. Trachimowicz effective December 6, 2010 (incorporated by reference to Exhibit 10.5.2 to the Companys Annual Report on Form 10-K for the year ended December 31, 2010 filed on March 10, 2011) | |||||
10.4.3 | 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) | |||||
10.5 | 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) |
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10.6 | 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 (File No. 000-52139)) | |||||
10.7 | Rockville Bank Supplemental Executive Retirement Agreement for Joseph F. Jeamel, Jr. (incorporated herein by reference to Exhibit 10.8 to the Registration Statement filed on Form S-1 filed for Rockville Financial New, Inc. on September 16, 2010) | |||||
10.7.1 | 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) | |||||
10.8 | 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 (File No. 333-121421)) | |||||
10.9 | 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) | |||||
10.10 | 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 (File No. 000-51239)) | |||||
10.11 | 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) | |||||
10.12 | Supplemental Executive Retirement Agreement of Rockville Bank for Mark A. Kucia effective December 6, 2010 (incorporated by reference to Exhibit 10.13 to the Companys Annual Report on Form 10-K for the year ended December 31, 2010 filed on March 10, 2011) | |||||
10.12.1 | Employment Agreement as amended and restated by and among Rockville Financial, Inc., Rockville Bank and Mark A. Kucia, effective January 1, 2011(incorporated by reference to Exhibit 10.13.1 to the Companys Annual Report on Form 10-K for the year ended December 31, 2010 filed on March 10, 2011) | |||||
10.13 | Employment Agreement by and among Rockville Financial, Inc., Rockville Bank and Marino J. Santarelli effective July 18, 2011 (incorporated herein by reference to Exhibit 10.1 to the Current Report on the Companys Form 8-K filed on July 19, 2011) | |||||
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) | |||||
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 |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
Rockville Financial, Inc. |
||||
By: | /s/ John T. Lund | |||
John T. Lund | ||||
EVP, Chief Financial Officer and Treasurer | ||||
Date: August 9, 2011
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