##### Table of Contents



UNITED STATES
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 September 30, 2010.
 Commission File Number: 000-51239
 ROCKVILLE FINANCIAL, INC.
 (Exact name of registrant as specified in its charter)
 Connecticut
    
    30-0288470(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)25 Park Street, Rockville, Connecticut
    
    06066(Address of principal executive offices)
    
    (Zip Code)
 (860) 291-3600
(Registrants telephone number, including area code)
 þ o
 o þ
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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Table of Contents
 Page
 Part I  FINANCIAL INFORMATIONItem 1. Interim Financial Statements  UnauditedConsolidated Statements of Condition as of September 30, 2010
and December 31, 2009
    
    
    3Consolidated Statements of Income for the three months and nine months ended
September 30, 2010 and 2009
    
    
    4Consolidated Statement of Changes in Stockholders Equity for the nine months
ended September 30, 2010
    
    
    6Consolidated Statements of Cash Flows for the nine months ended
September 30, 2010 and 2009
    
    
    7Notes to Consolidated Financial Statements
    
    
    9Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    26Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    40Item 4. Controls and Procedures
    
    
    41Part II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    42Item 1A. Risk Factors
    
    
    42Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    43Item 3. Defaults Upon Senior Securities
    
    
    43Item 4. Removed and Reserved
    
    
    43Item 5. Other Information
    
    
    43Item 6. Exhibits
    
    
    44SIGNATURES
    
    
    46ExhibitsEX-3.3EX-31.1EX-31.2EX-32
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##### Table of Contents



Rockville Financial, Inc. and Subsidiaries
 
 Consolidated Statements of Condition
 (In Thousands, Except Share Amounts)
 (Unaudited)
 September 30,
    
    
    December 31,2010
    
    
    2009ASSETSCASH AND CASH EQUIVALENTS:Cash and due from banks
    
    $
    23,677
    
    
    $
    18,507Short-term investments
    
    
    13,749
    
    
    
    800Total cash and cash equivalents
    
    
    37,426
    
    
    
    19,307AVAILABLE FOR SALE SECURITIES-At fair value
    
    
    126,143
    
    
    
    102,751HELD TO MATURITY SECURITIES-At amortized cost
    
    
    15,431
    
    
    
    19,074LOANS HELD FOR SALE
    
    
    364
    
    
    
    LOANS RECEIVABLE (Net of allowance for loan
losses of $14,094 in 2010 and $12,539 in 2009)
    
    
    1,388,516
    
    
    
    1,361,019FEDERAL HOME LOAN BANK STOCK, at cost
    
    
    17,007
    
    
    
    17,007ACCRUED INTEREST RECEIVABLE
    
    
    4,692
    
    
    
    4,287DEFERRED TAX ASSET-Net
    
    
    10,642
    
    
    
    10,608PREMISES AND EQUIPMENT-Net
    
    
    14,986
    
    
    
    15,863GOODWILL
    
    
    1,149
    
    
    
    1,070CASH SURRENDER VALUE OF BANK-OWNED LIFE INSURANCE
    
    
    10,364
    
    
    
    10,076OTHER REAL ESTATE OWNED
    
    
    5,895
    
    
    
    3,061PREPAID FDIC ASSESSMENTS
    
    
    4,238
    
    
    
    5,884OTHER ASSETS
    
    
    2,915
    
    
    
    1,127$
    1,639,768
    
    
    $
    1,571,134LIABILITIES AND STOCKHOLDERS EQUITYLIABILITIES:DEPOSITS:Non-interest-bearing
    
    $
    164,577
    
    
    $
    150,484Interest-bearing
    
    
    1,010,401
    
    
    
    978,624Total deposits
    
    
    1,174,978
    
    
    
    1,129,108MORTGAGORS AND INVESTORS ESCROW ACCOUNTS
    
    
    3,191
    
    
    
    6,385ADVANCES FROM THE FEDERAL HOME LOAN BANK
    
    
    276,428
    
    
    
    263,802ACCRUED EXPENSES AND OTHER LIABILITIES
    
    
    20,032
    
    
    
    14,411Total liabilities
    
    
    1,474,629
    
    
    
    1,413,706COMMITMENTS AND CONTINGENCIES (Note 12)STOCKHOLDERS EQUITY:Preferred stock (no par value; 1,000,000 shares authorized;
no shares issued and outstanding in 2010 and 2009)
    
    
    
    
    
    
    Common stock (no par value; 29,000,000 shares authorized;
19,551,938 and 19,554,774 shares issued and outstanding at
September 30, 2010 and December 31, 2009, respectively.)
    
    
    85,249
    
    
    
    85,249Additional paid-in capital
    
    
    4,484
    
    
    
    4,082Unearned compensation  ESOP
    
    
    (3,654
    )
    
    
    (4,178
    )Treasury stock, at cost (698,826 at September 30, 2010 and
December 31, 2009)
    
    
    (9,663
    )
    
    
    (9,663
    )Retained earnings
    
    
    89,155
    
    
    
    82,971Accumulated other comprehensive loss, net of tax
    
    
    (432
    )
    
    
    (1,033
    )Total stockholders equity
    
    
    165,139
    
    
    
    157,428$
    1,639,768
    
    
    $
    1,571,134
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##### Table of Contents



Rockville Financial, Inc. and Subsidiaries
 
 Consolidated Statements of Income
 (In Thousands, Except Share Data)
 (Unaudited)
 For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009INTEREST AND DIVIDEND INCOME:Loans
    
    $
    17,833
    
    
    $
    17,222
    
    
    $
    52,831
    
    
    $
    51,965Securities-interest
    
    
    1,118
    
    
    
    1,359
    
    
    
    3,460
    
    
    
    4,837Securities-dividends
    
    
    117
    
    
    
    102
    
    
    
    335
    
    
    
    319Interest-bearing deposits
    
    
    1
    
    
    
    1
    
    
    
    4
    
    
    
    1Total interest and dividend income
    
    
    19,069
    
    
    
    18,684
    
    
    
    56,630
    
    
    
    57,122INTEREST EXPENSE:Deposits
    
    
    2,815
    
    
    
    4,807
    
    
    
    8,668
    
    
    
    15,439Borrowed funds
    
    
    2,701
    
    
    
    2,577
    
    
    
    7,852
    
    
    
    7,819Total interest expense
    
    
    5,516
    
    
    
    7,384
    
    
    
    16,520
    
    
    
    23,258Net interest income
    
    
    13,553
    
    
    
    11,300
    
    
    
    40,110
    
    
    
    33,864PROVISION FOR LOAN LOSSES
    
    
    1,302
    
    
    
    700
    
    
    
    3,114
    
    
    
    1,303Net interest income after provision
for loan losses
    
    
    12,251
    
    
    
    10,600
    
    
    
    36,996
    
    
    
    32,561NON-INTEREST INCOME:Total other-than-temporary impairment
losses on equity securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (357
    )Service charges and fees
    
    
    1,948
    
    
    
    1,376
    
    
    
    5,182
    
    
    
    3,874Net gain from sales of securities
    
    
    2
    
    
    
    
    
    
    
    190
    
    
    
    936Net gain from sales of loans
    
    
    669
    
    
    
    328
    
    
    
    1,192
    
    
    
    656Other income
    
    
    127
    
    
    
    105
    
    
    
    234
    
    
    
    273Total non-interest income
    
    
    2,746
    
    
    
    1,809
    
    
    
    6,798
    
    
    
    5,382NON-INTEREST EXPENSE:Salaries and employee benefits
    
    
    4,958
    
    
    
    4,710
    
    
    
    14,579
    
    
    
    14,092Service bureau fees
    
    
    1,020
    
    
    
    952
    
    
    
    3,006
    
    
    
    2,924Occupancy and equipment
    
    
    1,056
    
    
    
    1,127
    
    
    
    3,238
    
    
    
    3,324Professional fees
    
    
    378
    
    
    
    202
    
    
    
    1,136
    
    
    
    903Marketing and promotions
    
    
    247
    
    
    
    149
    
    
    
    918
    
    
    
    767FDIC assessments
    
    
    406
    
    
    
    375
    
    
    
    1,207
    
    
    
    1,874Other real estate owned
    
    
    498
    
    
    
    11
    
    
    
    965
    
    
    
    11Other
    
    
    1,313
    
    
    
    1,316
    
    
    
    3,854
    
    
    
    3,766Total non-interest expense
    
    
    9,876
    
    
    
    8,842
    
    
    
    28,903
    
    
    
    27,661INCOME BEFORE INCOME TAXES
    
    
    5,121
    
    
    
    3,567
    
    
    
    14,891
    
    
    
    10,282PROVISION FOR INCOME TAXES
    
    
    1,862
    
    
    
    1,227
    
    
    
    5,314
    
    
    
    3,432NET INCOME
    
    $
    3,259
    
    
    $
    2,340
    
    
    $
    9,577
    
    
    $
    6,850
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Rockville Financial, Inc. and Subsidiaries
Consolidated Statements of Income  Concluded
(In Thousands, Except Share Data)
(Unaudited)
 For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net income per share
(see Note 2):Basic
    
    $
    0.18
    
    
    $
    0.13
    
    
    $
    0.52
    
    
    $
    0.37Diluted
    
    
    0.18
    
    
    
    0.13
    
    
    
    0.52
    
    
    
    0.37Weighted average shares outstanding:Basic
    
    
    18,541,672
    
    
    
    18,477,974
    
    
    
    18,527,501
    
    
    
    18,460,244Diluted
    
    
    18,561,277
    
    
    
    18,497,155
    
    
    
    18,541,739
    
    
    
    18,466,638
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Rockville Financial, Inc. and Subsidiaries
 
 Consolidated Statement of Changes in Stockholders Equity
 (In Thousands, Except Share Data)
 (Unaudited)
 AccumulatedAdditional
    
    
    Unearned
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    TotalCommon Stock
    
    
    Paid-in
    
    
    Compensation
    
    
    Retained
    
    
    Treasury Stock
    
    
    Comprehensive
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    - ESOP
    
    
    Earnings
    
    
    Shares
    
    
    Amount
    
    
    Loss
    
    
    EquityBalance at December 31, 2009
    
    
    19,554,774
    
    
    $
    85,249
    
    
    $
    4,082
    
    
    $
    (4,178
    )
    
    $
    82,971
    
    
    
    698,826
    
    
    $
    (9,663
    )
    
    $
    (1,033
    )
    
    $
    157,428Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,577
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,577Net unrealized gain on securities
available for sale, net of
reclassification adjustments and tax
effects
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    308
    
    
    
    308Change in accumulated other
comprehensive loss related to employee
benefit plans, net of reclassification
adjustments and tax effects
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    293
    
    
    
    293Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,178Share-based compensation expense
    
    
    
    
    
    
    
    
    
    
    350
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    350ESOP shares released or committed to be
released
    
    
    
    
    
    
    
    
    
    
    82
    
    
    
    524
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    606Cancellation of shares for tax withholding
    
    
    (2,836
    )
    
    
    
    
    
    
    (30
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30
    )Dividends paid ($0.18 per common share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,393
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,393
    )Balance at September 30, 2010
    
    
    19,551,938
    
    
    $
    85,249
    
    
    $
    4,484
    
    
    $
    (3,654
    )
    
    $
    89,155
    
    
    
    698,826
    
    
    $
    (9,663
    )
    
    $
    (432
    )
    
    $
    165,139
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Rockville Financial, Inc. and Subsidiaries
 
 Consolidated Statements of Cash Flows
 (In Thousands)
 (Unaudited)
 For the Nine MonthsEnded September 30,2010
    
    
    2009CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    9,577
    
    
    $
    6,850Adjustments to reconcile net income to net cash provided by
operating activities:Amortization and accretion of premiums and discounts on
investments, net
    
    
    (125
    )
    
    
    (127
    )Share-based compensation expense
    
    
    350
    
    
    
    769Amortization of ESOP Expense
    
    
    606
    
    
    
    525Provision for loan losses
    
    
    3,114
    
    
    
    1,303Write-down of OREO
    
    
    380
    
    
    
    Net gain from sales of securities
    
    
    (190
    )
    
    
    (936
    )Other-than-temporary impairment of securities
    
    
    
    
    
    
    357Loans originated for sale
    
    
    (46,788
    )
    
    
    (38,902
    )Proceeds from sales of loans
    
    
    47,616
    
    
    
    39,434Net gains from sales of loans
    
    
    (1,192
    )
    
    
    (656
    )Gain on sale of OREO
    
    
    90
    
    
    
    Depreciation and amortization
    
    
    1,089
    
    
    
    1,212Loss on disposal of equipment
    
    
    1
    
    
    
    Deferred income tax benefit
    
    
    (450
    )
    
    
    (630
    )Increase in cash surrender value of bank-owned life insurance
    
    
    (288
    )
    
    
    (274
    )Net change in:Deferred loan fees and premiums
    
    
    (83
    )
    
    
    649Accrued interest receivable
    
    
    (405
    )
    
    
    (31
    )Other assets
    
    
    (142
    )
    
    
    (874
    )Accrued expenses and other liabilities
    
    
    5,968
    
    
    
    1,886Net cash provided by operating activities
    
    
    19,128
    
    
    
    10,555CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from sales of available for sale securities
    
    
    399
    
    
    
    21,171Proceeds from calls and maturities of available for sale securities
    
    
    10,723
    
    
    
    500Principal payments on available for sale mortgage-backed securities
    
    
    16,284
    
    
    
    20,543Principal payments on held to maturity mortgage-backed securities
    
    
    3,694
    
    
    
    3,881Purchases of available for sale securities
    
    
    (49,967
    )
    
    
    (6,055
    )Proceeds from sale of OREO
    
    
    682
    
    
    
    Capitalized OREO costs
    
    
    (95
    )
    
    
    Purchase of loans
    
    
    
    
    
    
    (2,529
    )Loan originations, net of principal payments
    
    
    (34,419
    )
    
    
    (65,051
    )Purchases of premises and equipment
    
    
    (189
    )
    
    
    (1,046
    )Net cash used in investing activities
    
    
    (52,888
    )
    
    
    (28,586
    )
   7




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Rockville Financial, Inc. and Subsidiaries
Consolidated Statements of Cash Flows  Concluded
(In Thousands)
(Unaudited)
 For the Nine MonthsEnded September 30,2010
    
    
    2009CASH FLOWS FROM FINANCING ACTIVITIES:Net increase in deposits
    
    
    45,870
    
    
    
    83,146Net decrease in mortgagors and investors escrow accounts
    
    
    (3,194
    )
    
    
    (2,908
    )Net decrease in short-term Federal Home Loan Bank advances
    
    
    (15,000
    )
    
    
    (51,000
    )Proceeds from long-term Federal Home Loan Bank advances
    
    
    37,800
    
    
    
    8,112Repayments of long-term Federal Home Loan Bank advances
    
    
    (10,174
    )
    
    
    (14,143
    )Common stock repurchased
    
    
    
    
    
    
    (198
    )Cancellation of shares for tax withholding
    
    
    (30
    )
    
    
    (34
    )Cash dividends paid on common stock
    
    
    (3,393
    )
    
    
    (2,829
    )Net cash provided by financing activities
    
    
    51,879
    
    
    
    20,146NET INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    18,119
    
    
    
    2,115CASH AND CASH EQUIVALENTSBeginning of period
    
    
    19,307
    
    
    
    14,901CASH AND CASH EQUIVALENTSEnd of period
    
    $
    37,426
    
    
    $
    17,016SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash paid during the year for:Interest
    
    $
    16,478
    
    
    $
    23,345Income taxes
    
    
    6,900
    
    
    
    3,100Transfer of loans to other real estate owned
    
    
    3,891
    
    
    
    2,155Goodwill recognition from subsidiary acquisition
    
    
    79
    
    
    
    Transfer to fixed assets from subsidiary acquisition
    
    
    23
    
    
    
    
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##### Table of Contents



Rockville Financial, Inc. and Subsidiaries
 
 Notes to Unaudited Consolidated Financial Statements
 1.
    
    Basis of Presentation and Principles of ConsolidationThe consolidated interim financial statements and the accompanying notes presented in
this report include the accounts of Rockville Financial, Inc., its wholly-owned subsidiary
Rockville Bank, and the Banks wholly-owned subsidiaries, SBR Mortgage Company, SBR
Investment Corp., Inc., Rockville Bank Commercial Properties, Inc., Rockville Bank
Residential Properties, Inc., Rockville Financial Services, Inc. and Rockville Bank
Mortgage, Inc. Rockville Financial, Inc. (the Company) is a state-chartered mid-tier
stock holding company formed on December 17, 2004. Rockville Financial MHC, Inc. holds 56.7%
of the Companys common stock, and the Company holds all of the common stock of Rockville
Bank (the Bank).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 nine months ended September 30, 2010
are not necessarily indicative of the results that may be expected for the year ending
December 31, 2010. These interim consolidated financial statements should be read in
conjunction with the Companys 2009 consolidated financial statements and notes thereto
included in the Companys Annual Report on Form 10-K for the year ended December 31, 2009.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 managements estimates and
assumptions. Material estimates that are particularly susceptible to significant change in
the near term relate to the determination of the allowance for loan losses, 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.On September 21, 2009, the Company entered into an agreement to purchase the assets of
Family Choice
Mortgage Company, a privately held Massachusetts mortgage origination corporation operating
in Massachusetts and Connecticut. The transaction closed on January 11, 2010 and now
operates under the name of Rockville Bank Mortgage, Inc., d/b/a Family Choice Mortgage, a
subsidiary of Rockville Bank. This addition helps to expand the Companys mortgage origination business, particularly in the area of
Federal Housing Administration (FHA) loans, Veterans Administration (VA) loans, loans to first time home
buyers, and Reverse Mortgages. Policies and procedures have been implemented that govern expense and revenue
sharing. The subsidiary will be included within the risk management system of the Company
and is not expected to have a significant effect on the operations of the Company.The acquisition was structured as an earn-out with no payment at closing. The principal of
the business is to receive a cash payout payable over a seven year period based on the income earned
before taxes by Rockville Bank Mortgage, Inc. Goodwill from the transaction was recorded as a contingent
liability. The liability was established based on a seven year discounted cash flow valuation applied to
the projected income of Rockville Bank Mortgage, Inc. Projected income was calculated using
budgeted amounts for 2010 and a 5.0% estimated annual growth thereafter. The only tangible
assets acquired were the fixed assets of Family Choice Mortgage Company. The value of the
fixed assets acquired was recorded using the book value, which approximated the fair value,
of the fixed assets as of January, 2010.
 Discounted Contingent Liability to Family Choice Mortgage Company
    
    $
    103,182Fixed Asset Valuation as of January, 2010
    
    $
    24,232Goodwill Asset
    
    $
    78,950
 
 9




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##### Table of Contents



2.
    
    Earnings Per ShareThe following table sets forth the calculation of basic and diluted earnings per share
for the three and nine months ended September 30, 2010 and 2009:
 For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(In thousands, except share data)Net income
    
    $
    3,259
    
    
    $
    2,340
    
    
    $
    9,577
    
    
    $
    6,850Weighted-average basic
shares
outstanding
    
    
    18,541,672
    
    
    
    18,477,974
    
    
    
    18,527,501
    
    
    
    18,460,244Diluted effect of stock
options
    
    
    19,605
    
    
    
    19,181
    
    
    
    14,238
    
    
    
    6,394Weighted-average diluted
shares
    
    
    18,561,277
    
    
    
    18,497,155
    
    
    
    18,541,739
    
    
    
    18,466,638Earnings per share:Basic
    
    $
    0.18
    
    
    $
    0.13
    
    
    $
    0.52
    
    
    $
    0.37Diluted
    
    $
    0.18
    
    
    $
    0.13
    
    
    $
    0.52
    
    
    $
    0.37
 Treasury shares and unallocated common shares held by the ESOP are not included in the
weighted-average number of common shares outstanding for either basic or diluted earnings
per share calculations. Unvested restricted shares are included in the weighted-average
number of common shares outstanding for basic earnings per share calculations. For the
three and nine month periods ended September 30, 2010 and 2009, the Companys common stock
equivalents relate solely to stock options granted and outstanding. Stock options that
would have an anti-dilutive effect on earnings per share are excluded from the calculation.
For the three and nine months ended September 30, 2010, options to purchase 426,270 and
431,637 shares, respectively, of common stock were not considered in the computation of
potential common shares for the purpose of diluted EPS as the strike price of the options
was above the Companys average market price during the quarter.3.
    
    Recent Accounting PronouncementsDerivatives and Hedging, Scope Exception Related to Embedded Credit Derivatives, Topic
815:In May 2010, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) 2010-11 This is an update to FASB 815  Derivatives and Hedging
and is effective for fiscal quarters beginning after June 15, 2010. This ASU clarifies that
the scope exception in Paragraphs 815-15-15-8 through 15-9 only applies to the transfer of
credit risk in the form of subordination of one financial instrument to another. This
would apply to a securitization that is issued in several tranches and one tranche is
subordinate to another tranche of the same securitization. Under these circumstances the
embedded credit derivative does not have to be analyzed under the above paragraphs for
possible bifurcation. This update did not have a material impact on the Companys
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 entitys
portfolio of financing receivables (2) how that risk is analyzed and assessed in arriving
at the allowance for credit losses (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. This Update is expected to have a significant impact on the Companys disclosure in
the consolidated financial statements for the year ended December 31, 2010.Receivables, Effect of a Loan Modification When the Loan Is Part of a Pool That is
Accounted for as a Single Asset, Topic 310:In April 2010, the FASB issued ASU 2010-18 
This update is effective for
 10




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##### Table of Contents



modifications of loans accounted for with pools in the first interim or annual period
ending on or after July 15, 2010. This update provides guidance on accounting for acquired
loans that have evidence of credit deterioration upon acquisition. It allows acquired
assets with common risk characteristics to be accounted for in the aggregate as a pool.
This update did not have a material impact on the Companys consolidated financial
statements.Fair Value Measurements and Disclosures, Topic 820: In January 2010, FASB issued ASU
No 2010-06 which provides guidance that requires more robust disclosures about (1) the
different classes of assets and liabilities measured at fair value, (2) the valuation
techniques and inputs used, (3) the activity in Level 3 fair value measurements, and (4)
the transfers between Levels 1, 2, and 3. This guidance was effective for the Company on
January 1, 2010, and did not have a material impact on the Companys consolidated financial
statements.Transfers of Financial Assets, Topic 860:In June 2009, the FASB issued ASU No. 2009-16
which requires entities to provide more information about sales of securitized financial
assets and similar transactions, particularly if the seller retains some risk in the
assets. The guidance eliminates the concept of a qualifying special-purpose entity, changes
the requirements for the derecognition of financial assets, and enhances the disclosure
requirements for sellers of the assets. This guidance was effective for the Company on
January 1, 2010 and did not have a material impact on the Companys consolidated financial
statements.4.
    
    Fair Value MeasurementsThe 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.
 Assets Recorded at Fair Value on a Recurring Basis:
 Fair Value MeasurementsAt September 30, 2010Quoted Pricesin ActiveMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableTotal Fair
    
    
    Assets
    
    
    Inputs
    
    
    InputsValue
    

    (Level 1)
    

    (Level 2)
    

    (Level 3)(In thousands)Available for Sale Securities:U.S. Government and government-sponsored
enterprise obligations
    
    $
    46,127
    
    
    $
    2,002
    
    
    $
    44,125
    
    
    $
    Residential mortgage-backed securities
    
    
    59,818
    
    
    
    
    
    
    
    59,818
    
    
    
    Corporate debt securities
    
    
    4,671
    
    
    
    
    
    
    
    4,671
    
    
    
    Marketable equity securities
    
    
    15,527
    
    
    
    15,454
    
    
    
    
    
    
    
    73Total
    
    $
    126,143
    
    
    $
    17,456
    
    
    $
    108,614
    
    
    $
    73
 11




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##### Table of Contents



Fair Value MeasurementsAt December 31, 2009Quoted Pricesin ActiveMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableTotal Fair
    
    
    Assets
    
    
    Inputs
    
    
    InputsValue
    

    (Level 1)
    

    (Level 2)
    

    (Level 3)(In thousands)Available for Sale Securities:U.S. Government and government-sponsored
enterprise obligations
    
    $
    7,052
    
    
    $
    2,018
    
    
    $
    5,034
    
    
    $
    Residential mortgage-backed securities
    
    
    75,967
    
    
    
    
    
    
    
    75,967
    
    
    
    Corporate debt securities
    
    
    4,656
    
    
    
    
    
    
    
    4,656
    
    
    
    Other debt securities
    
    
    731
    
    
    
    
    
    
    
    731
    
    
    
    Marketable equity securities
    
    
    14,345
    
    
    
    14,272
    
    
    
    
    
    
    
    73Total
    
    $
    102,751
    
    
    $
    16,290
    
    
    $
    86,388
    
    
    $
    73
   Nine Months Ended September 30,2010
    
    
    2009Investment Securities Available for Sale:
    
    (In thousands)Balance of recurring Level 3 assets at prior year end
    
    $
    73
    
    
    $
    2,114Total gains or losses (realized/unrealized):Included in earnings-realized
    
    
    
    
    
    
    Included in earnings-unrealized
    
    
    
    
    
    
    Included in other comprehensive income
    
    
    
    
    
    
    103Purchases, sales, issuances and settlements, net
    
    
    
    
    
    
    Transfers in and/or out of Level 3
    
    
    
    
    
    
    (241
    )Balance of recurring Level 3 assets at September 30
    
    $
    73
    
    
    $
    1,976
  12




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##### Table of Contents



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 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 managements judgment of the
appraisals and current real estate market conditions and therefore these assets are
classified as non-recurring Level 3 assets in the fair value hierarchy.Impaired Loans: Accounting standards require that a creditor recognize the
impairment of a loan if the present value of expected future cash flows discounted at the
loans effective interest rate (or, alternatively, the observable market price of the loan
or the fair value of the collateral) is less than the recorded investment in the impaired
loan. Non-recurring fair value adjustments to collateral dependent loans are recorded,
when necessary, to reflect partial write-downs based upon observable market price or
current appraised value of the collateral less costs and discounts based on managements
judgment of current conditions. Based on the significance of managements judgment, the
Company records 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 Companys assets measured at fair value on a non-recurring
basis for the three and nine months ended September 30, 2010 and 2009:
 Fair Value Measurements
At September 30, 2010using:Quoted Prices
    
    
    
    
    
    
    
    
    
    
    Threein Active
    
    
    
    
    
    
    
    
    
    
    Months Ended
    
    
    Nine Months EndedMarkets for
    
    
    Other
    
    
    Significant
    
    
    September 30,
    
    
    September 30,Identical
    
    
    Observable
    
    
    Unobservable
    
    
    2010 -
    
    
    2010 -Assets
    
    
    Inputs
    
    
    Inputs
    
    
    Total Gains
    
    
    Total GainsTotal
    

    (Level 1)
    

    (Level 2)
    

    (Level 3)
    

    (Losses)
    

    (Losses)(In thousands)Other real estate owned
    
    $
    5,895
    
    
    $
    
    
    
    $
    
    
    
    $
    5,895
    
    
    $
    (380
    )
    
    $
    (380
    )Impaired loans
    
    
    3,301
    
    
    
    
    
    
    
    
    
    
    
    3,301
    
    
    
    739
    
    
    
    (704
    )Total
    
    $
    9,196
    
    
    $
    
    
    
    $
    
    
    
    $
    9,196
    
    
    $
    359
    
    
    $
    (1,084
    )Fair Value Measurements
At September 30, 2009using:Quoted Prices
    
    
    
    
    
    
    
    
    
    
    Threein Active
    
    
    
    
    
    
    
    
    
    
    Months Ended
    
    
    Nine Months EndedMarkets for
    
    
    Other
    
    
    Significant
    
    
    September 30,
    
    
    September 30,Identical
    
    
    Observable
    
    
    Unobservable
    
    
    2009 -
    
    
    2009 -Assets
    
    
    Inputs
    
    
    Inputs
    
    
    Total Gains
    
    
    Total GainsTotal
    

    (Level 1)
    

    (Level 2)
    

    (Level 3)
    

    (Losses)
    
    (Losses)(In thousands)Impaired loans
    
    $
    9,821
    
    
    $
    
    
    
    $
    
    
    
    $
    9,821
    
    
    $
    
    
    
    $
    Total
    
    $
    9,821
    
    
    $
    
    
    
    $
    
    
    
    $
    9,821
    
    
    $
    
    
    
    $
    
 13




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##### Table of Contents



September 30, 2010
    
    
    December 31, 2009Carrying
    
    
    
    
    
    
    CarryingValue
    
    
    Fair Value
    
    
    Value
    
    
    Fair Value(In thousands)Financial assets:Cash and cash equivalents
    
    $
    37,426
    
    
    $
    37,426
    
    
    $
    19,307
    
    
    $
    19,307Available for sale securities
    
    
    126,143
    
    
    
    126,143
    
    
    
    102,751
    
    
    
    102,751Held to maturity securities
    
    
    15,431
    
    
    
    16,556
    
    
    
    19,074
    
    
    
    20,011Loans receivable-net
    
    
    1,388,516
    
    
    
    1,406,795
    
    
    
    1,361,019
    
    
    
    1,360,789Loans held for sale
    
    
    364
    
    
    
    364
    
    
    
    
    
    
    
    FHLBB stock
    
    
    17,007
    
    
    
    17,007
    
    
    
    17,007
    
    
    
    17,007Accrued interest receivable
    
    
    4,692
    
    
    
    4,692
    
    
    
    4,287
    
    
    
    4,287Financial liabilities:Deposits
    
    
    1,174,978
    
    
    
    1,162,929
    
    
    
    1,129,108
    
    
    
    1,135,815Mortgagors and investorsescrow accounts
    
    
    3,191
    
    
    
    3,191
    
    
    
    6,385
    
    
    
    6,385Advances from FHLBB
    
    
    276,428
    
    
    
    295,014
    
    
    
    263,802
    
    
    
    276,619
 14




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##### Table of Contents



5. Investment Securities
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueSeptember 30, 2010
    
    
    
    
    
    (In thousands)Available
for sale:Debt securities:U.S. Government and government-
sponsored enterprise obligations
    
    $
    45,997
    
    
    $
    155
    
    
    $
    25
    
    
    $
    46,127Government-sponsored residential
mortgage-backed
securities
    
    
    56,334
    
    
    
    3,485
    
    
    
    1
    
    
    
    59,818Corporate debt securities
    
    
    5,888
    
    
    
    
    
    
    
    1,217
    
    
    
    4,671Total debt securities
    
    
    108,219
    
    
    
    3,640
    
    
    
    1,243
    
    
    
    110,616Marketable equity securities, by sector:Banks
    
    
    1,256
    
    
    
    2,739
    
    
    
    10
    
    
    
    3,985Consumer and household products
    
    
    1,134
    
    
    
    65
    
    
    
    25
    
    
    
    1,174Food and beverage service
    
    
    1,151
    
    
    
    217
    
    
    
    41
    
    
    
    1,327Government-sponsored enterprises
    
    
    283
    
    
    
    15
    
    
    
    92
    
    
    
    206Healthcare/pharmaceutical
    
    
    387
    
    
    
    
    
    
    
    32
    
    
    
    355Industrial
    
    
    695
    
    
    
    240
    
    
    
    17
    
    
    
    918Integrated utilities
    
    
    742
    
    
    
    93
    
    
    
    
    
    
    
    835Mutual funds
    
    
    2,656
    
    
    
    141
    
    
    
    
    
    
    
    2,797Oil and gas
    
    
    754
    
    
    
    500
    
    
    
    4
    
    
    
    1,250Technology/Semiconductor
    
    
    228
    
    
    
    92
    
    
    
    
    
    
    
    320Telecommunications
    
    
    661
    
    
    
    63
    
    
    
    10
    
    
    
    714Transportation
    
    
    294
    
    
    
    34
    
    
    
    
    
    
    
    328Other industries
    
    
    1,030
    
    
    
    329
    
    
    
    41
    
    
    
    1,318Total marketable equity securities
    
    
    11,271
    
    
    
    4,528
    
    
    
    272
    
    
    
    15,527Total available for sale
    
    $
    119,490
    
    
    $
    8,168
    
    
    $
    1,515
    
    
    $
    126,143
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueSeptember 30, 2010
    
    
    
    
    
    (In thousands)Held to maturity:Government-sponsored
residential
mortgage-backed
securities
    
    $
    15,431
    
    
    $
    1,125
    
    
    $
    
    
    
    $
    16,556Total held to maturity
    
    $
    15,431
    
    
    $
    1,125
    
    
    $
    
    
    
    $
    16,556
 15




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##### Table of Contents



Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueDecember 31, 2009
    
    
    
    
    
    (In thousands)Available for sale:Debt securities:U.S. Government and
government-sponsored enterprise
obligations
    
    $
    7,017
    
    
    $
    36
    
    
    $
    1
    
    
    $
    7,052Government-sponsored residential
mortgage-backed securities
    
    
    72,537
    
    
    
    3,431
    
    
    
    1
    
    
    
    75,967Corporate debt securities
    
    
    5,879
    
    
    
    
    
    
    
    1,223
    
    
    
    4,656Other debt securities
    
    
    722
    
    
    
    9
    
    
    
    
    
    
    
    731Total debt securities
    
    
    86,155
    
    
    
    3,476
    
    
    
    1,225
    
    
    
    88,406Marketable equity securities, by sector:Banks
    
    
    1,256
    
    
    
    2,470
    
    
    
    173
    
    
    
    3,553Consumer and household products
    
    
    839
    
    
    
    40
    
    
    
    17
    
    
    
    862Food and beverage service
    
    
    948
    
    
    
    158
    
    
    
    41
    
    
    
    1,065Government-sponsored enterprises
    
    
    284
    
    
    
    217
    
    
    
    
    
    
    
    501Healthcare/pharmaceutical
    
    
    387
    
    
    
    3
    
    
    
    19
    
    
    
    371Industrial
    
    
    639
    
    
    
    134
    
    
    
    13
    
    
    
    760Integrated utilities
    
    
    742
    
    
    
    69
    
    
    
    
    
    
    
    811Mutual funds
    
    
    2,621
    
    
    
    62
    
    
    
    
    
    
    
    2,683Oil and gas
    
    
    754
    
    
    
    353
    
    
    
    12
    
    
    
    1,095Technology/Semiconductor
    
    
    342
    
    
    
    173
    
    
    
    
    
    
    
    515Telecommunications
    
    
    354
    
    
    
    
    
    
    
    15
    
    
    
    339Transportation
    
    
    313
    
    
    
    190
    
    
    
    
    
    
    
    503Other industries
    
    
    1,030
    
    
    
    263
    
    
    
    6
    
    
    
    1,287Total marketable equity securities
    
    
    10,509
    
    
    
    4,132
    
    
    
    296
    
    
    
    14,345Total securities available for sale
    
    $
    96,664
    
    
    $
    7,608
    
    
    $
    1,521
    
    
    $
    102,751
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueDecember 31, 2009
    
    
    
    
    
    (In thousands)Held to maturity:Government-sponsored
residential
mortgage-backed
securities
    
    $
    19,074
    
    
    $
    937
    
    
    $
    
    
    
    $
    20,011Total held to maturity
    
    $
    19,074
    
    
    $
    937
    
    
    $
    
    
    
    $
    20,011
  16




---



##### Table of Contents



Available for Sale
    
    
    Held to MaturityAmortized
    
    
    
    
    
    
    Amortized
    
    
    FairCost
    
    
    Fair Value
    
    
    Cost
    
    
    Value(In thousands)Maturity:Within 1 year
    
    $
    2,102
    
    
    $
    2,102
    
    
    $
    
    
    
    $
    After 1 but within 5 years
    
    
    7,963
    
    
    
    7,954
    
    
    
    
    
    
    
    After 5 but within 10 years
    
    
    38,995
    
    
    
    39,106
    
    
    
    
    
    
    
    After 10 years
    
    
    2,825
    
    
    
    1,636
    
    
    
    
    
    
    
    51,885
    
    
    
    50,798
    
    
    
    
    
    
    
    Mortgage-backed securities
    
    
    56,334
    
    
    
    59,818
    
    
    
    15,431
    
    
    
    16,556$
    108,219
    
    
    $
    110,616
    
    
    $
    15,431
    
    
    $
    16,556
     Less than 12 Months
    
    
    12 Months or More
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Loss
    
    
    Value
    
    
    Loss
    
    
    Value
    
    
    LossSeptember 30, 2010
    
    
    
    
    
    
    
    
    
    (In thousands)Available for sale:U.S. Government and
government-sponsored
enterprise obligations
    
    $
    4,975
    
    
    $
    25
    
    
    $
    
    
    
    $
    
    
    
    $
    4,975
    
    
    $
    25Government-sponsored
residential mortgage-backed
securities
    
    
    
    
    
    
    
    
    
    
    31
    
    
    
    1
    
    
    
    31
    
    
    
    1Corporate debt securities
    
    
    
    
    
    
    
    
    
    
    4,571
    
    
    
    1,217
    
    
    
    4,571
    
    
    
    1,217Total debt securities
    
    
    4,975
    
    
    
    25
    
    
    
    4,602
    
    
    
    1,218
    
    
    
    9,577
    
    
    
    1,243Marketable equity securities
    
    
    1,176
    
    
    
    200
    
    
    
    606
    
    
    
    72
    
    
    
    1,782
    
    
    
    272Total
    
    $
    6,151
    
    
    $
    225
    
    
    $
    5,208
    
    
    $
    1,290
    
    
    $
    11,359
    
    
    $
    1,515
 17




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##### Table of Contents



Less than 12 Months
    
    
    12 Months or More
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    FairValue
    
    
    Loss
    
    
    Value
    
    
    Loss
    
    
    Value
    
    
    Unrealized LossDecember 31, 2009
    
    
    
    
    
    
    
    
    
    (In thousands)Available for sale:U.S. Government and
government-sponsored
enterprises
    
    $
    2,018
    
    
    $
    1
    
    
    $
    
    
    
    $
    
    
    
    $
    2,018
    
    
    $
    1Government-sponsored
residential mortgage-backed
securities
    
    
    
    
    
    
    
    
    
    
    58
    
    
    
    1
    
    
    
    58
    
    
    
    1Corporate debt
    
    
    
    
    
    
    
    
    
    
    4,556
    
    
    
    1,223
    
    
    
    4,556
    
    
    
    1,223Total debt securities
    
    
    2,018
    
    
    
    1
    
    
    
    4,614
    
    
    
    1,224
    
    
    
    6,632
    
    
    
    1,225Marketable equity securities
    
    
    1,097
    
    
    
    184
    
    
    
    1,099
    
    
    
    112
    
    
    
    2,196
    
    
    
    296Total
    
    $
    3,115
    
    
    $
    185
    
    
    $
    5,713
    
    
    $
    1,336
    
    
    $
    8,828
    
    
    $
    1,521
  U.S. Government and government-sponsored enterprises and mortgage-backed securities
 Corporate Debt Securities.
 Marketable Equity Securities.
   18




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##### Table of Contents



6. Loans Receivable and Allowance for Loan Losses
  September 30, 2010
    
    
    December 31, 2009(In thousands)Real estate loans:Residential
    
    $
    738,732
    
    
    $
    754,838Commercial
    
    
    453,627
    
    
    
    426,028Construction
    
    
    69,874
    
    
    
    71,078Commercial business loans
    
    
    133,448
    
    
    
    113,240Installment, collateral and
other loans
    
    
    6,380
    
    
    
    7,742Total loans
    
    
    1,402,061
    
    
    
    1,372,926Net deferred loan costs and
premiums
    
    
    549
    
    
    
    632Allowance for loan losses
    
    
    (14,094
    )
    
    
    (12,539
    )Loans, net
    
    $
    1,388,516
    
    
    $
    1,361,019
 Non-performing Assets:
 September 30,
    
    
    December 31,2010
    
    
    2009(Dollars in thousands)Non-performing assets:Residential real estate(1)
    
    $
    5,668
    
    
    $
    3,106Commercial real estate
    
    
    2,166
    
    
    
    2,242Construction
    
    
    3,207
    
    
    
    6,630Commercial business loans
    
    
    529
    
    
    
    61Installment, collateral and other loans
    
    
    9
    
    
    
    7Total non-accrual loans(2)
    
    
    11,579
    
    
    
    12,046Accruing loan past due 90 days or more
    
    
    
    
    
    
    Troubled debt restructurings
    
    
    
    
    
    
    Total non-performing loans
    
    
    11,579
    
    
    
    12,046Other real estate owned
    
    
    5,895
    
    
    
    3,061Total non-performing assets
    
    $
    17,474
    
    
    $
    15,107Total non-performing loans to total loans
    
    
    0.83
    %
    
    
    0.88
    %Total non-performing assets to total assets
    
    
    1.07
    %
    
    
    0.96
    %Allowance for loan losses as a percent of total loans
    
    
    1.01
    %
    
    
    0.91
    %Allowance for loan losses as a percent of
non-performing loans
    
    
    121.72
    %
    
    
    104.09
    %
 
 (1)
    
    Residential mortgage loans include one-to-four family mortgage loans, home equity
loans, and home equity lines of credit.(2)
    
    The amount of income that was contractually due but not recognized on
non-accrual loans totaled $610,000 and $233,000 at September 30, 2010 and December 31,
2009, respectively. 19




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For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(In thousands)Balance, beginning of period
    
    $
    13,144
    
    
    $
    13,060
    
    
    $
    12,539
    
    
    $
    12,553Provision for loan losses
    
    
    1,302
    
    
    
    700
    
    
    
    3,114
    
    
    
    1,303Loans charged-off
    
    
    (375
    )
    
    
    (1,156
    )
    
    
    (1,594
    )
    
    
    (1,378
    )Recoveries of loans previously charged-off
    
    
    23
    
    
    
    6
    
    
    
    35
    
    
    
    132Balance, end of period
    
    $
    14,094
    
    
    $
    12,610
    
    
    $
    14,094
    
    
    $
    12,610
  7. Other Real Estate Owned
  8. Benefit Plans
  Components of Net Periodic Benefit Cost
 Other Post-RetirementPension Plans
    
    
    BenefitsThree Months Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(In thousands)Service cost
    
    $
    208
    
    
    $
    223
    
    
    $
    4
    
    
    $
    3Interest cost
    
    
    319
    
    
    
    310
    
    
    
    30
    
    
    
    27Expected return on plan assets
    
    
    (365
    )
    
    
    (263
    )
    
    
    
    
    
    
    Amortization of net actuarial losses
    
    
    139
    
    
    
    239
    
    
    
    15
    
    
    
    6Amortization of prior service cost
    
    
    (9
    )
    
    
    81
    
    
    
    5
    
    
    
    5Net periodic benefit cost
    
    $
    292
    
    
    $
    590
    
    
    $
    54
    
    
    $
    41
 20




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##### Table of Contents



Pension Plans
    
    
    Other Post-Retirement BenefitsNine Months Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(In thousands)Service cost
    
    $
    623
    
    
    $
    682
    
    
    $
    13
    
    
    $
    8Interest cost
    
    
    956
    
    
    
    927
    
    
    
    91
    
    
    
    80Expected return on plan assets
    
    
    (1,095
    )
    
    
    (788
    )
    
    
    
    
    
    
    Amortization of net actuarial losses
    
    
    419
    
    
    
    717
    
    
    
    45
    
    
    
    19Amortization of prior service cost
    
    
    (27
    )
    
    
    240
    
    
    
    14
    
    
    
    15Net periodic benefit cost
    
    $
    876
    
    
    $
    1,778
    
    
    $
    163
    
    
    $
    122
     9. Share-Based Compensation
   21




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Stock Options:
 Weighted Average
    
    
    AggregateWeighted
    
    
    Remaining
    
    
    IntrinsicStock
    
    
    Average
    
    
    Contractual Term
    
    
    ValueOptions
    
    
    Exercise Price
    
    
    (in years)
    
    
    (In thousands)Stock options outstanding at December 31, 2009
    
    
    445,875
    
    
    $
    13.18Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited or expired
    
    
    
    
    
    
    Stock options outstanding at September 30, 2010
    
    
    445,875
    
    
    $
    13.18
    
    
    
    6.9
    
    
    $
    284Options exercisable at September 30, 2010
    
    
    369,055
    
    
    $
    13.73
    
    
    
    6.7
    
    
    $
    
    Restricted Stock:
 Weighted AverageNumber
    
    
    Grant-Dateof Shares
    
    
    Fair ValueUnvested as of December 31, 2009
    
    
    41,695
    
    
    $
    13.47Granted
    
    
    
    
    
    
    Vested
    
    
    (9,950
    )
    
    
    12.50Forfeited
    
    
    
    
    
    
    Unvested as of September 30, 2010
    
    
    31,745
    
    
    $
    13.78
   10. Income Taxes
   22




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11. Accumulated Other Comprehensive (Loss) Income
  Net Unrealized GainMinimum Pension
    
    
    on Available For
    
    
    Accumulated OtherLiability
    
    
    Sale Securities
    
    
    Comprehensive Loss(In thousands)December 31, 2009
    
    $
    (5,049
    )
    
    $
    4,016
    
    
    $
    (1,033
    )Change
    
    
    293
    
    
    
    308
    
    
    
    601September 30, 2010
    
    $
    (4,756
    )
    
    $
    4,324
    
    
    $
    (432
    )
  September 30, 2010(In thousands)Net income
    
    $
    9,577Unrealized gain on securities available for sale
    
    
    567Income tax provision
    
    
    (259
    )Net unrealized gain on securities available for sale
    
    
    308Benefit plans amortization
    
    
    450Income tax provision
    
    
    (157
    )Net benefit plans amortization
    
    
    293Total other comprehensive income, net of tax
    
    
    601Total comprehensive income
    
    $
    10,178
 12. Commitments and Contingencies
 Financial Instruments With Off-Balance Sheet Risk
  23




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##### Table of Contents



September 30,
    
    
    December 31,2010
    
    
    2009(In thousands)Commitments to extend credit:Commitments to grant loans
    
    $
    88,453
    
    
    $
    36,650Undisbursed construction loans
    
    
    66,388
    
    
    
    86,492Undisbursed home equity lines of credit
    
    
    137,269
    
    
    
    125,511Undisbursed commercial lines of credit
    
    
    57,572
    
    
    
    57,713Standby letters of credit
    
    
    10,306
    
    
    
    10,555Unused checking overdraft lines of credit
    
    
    93
    
    
    
    94$
    360,081
    
    
    $
    317,015
 Legal Matters
 13. Regulatory Matters
   24




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Minimum To Be WellMinimum For Capital
    
    
    Capitalized UnderAdequacy
    
    
    Prompt CorrectiveActual
    
    
    Purposes
    
    
    Action ProvisionsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio(Dollars in thousands)Rockville Bank:September 30, 2010Total capital to risk weighted assets
    
    $
    170,220
    
    
    
    13.3
    %
    
    $
    102,619
    
    
    
    8.0
    %
    
    $
    128,274
    
    
    
    10.0
    %Tier 1 capital to risk weighted assets
    
    
    155,439
    
    
    
    12.1
    
    
    
    51,300
    
    
    
    4.0
    
    
    
    76,950
    
    
    
    6.0Tier 1 capital to total average assets
    
    
    155,439
    
    
    
    9.7
    
    
    
    64,231
    
    
    
    4.0
    
    
    
    80,289
    
    
    
    5.0December 31, 2009Total capital to risk weighted assets
    
    $
    158,870
    
    
    
    13.1
    %
    
    $
    96,976
    
    
    
    8.0
    %
    
    $
    121,220
    
    
    
    10.0
    %Tier 1 capital to risk weighted assets
    
    
    145,654
    
    
    
    12.0
    
    
    
    48,488
    
    
    
    4.0
    
    
    
    72,732
    
    
    
    6.0Tier 1 capital to total average assets
    
    
    145,654
    
    
    
    9.3
    
    
    
    62,478
    
    
    
    4.0
    
    
    
    78,097
    
    
    
    5.0Rockville Financial, Inc.:September 30, 2010Total capital to risk weighted assets
    
    $
    179,135
    
    
    
    14.0
    %
    
    $
    102,656
    
    
    
    8.0
    %
    
    
    N/A
    
    
    
    N/ATier 1 capital to risk weighted assets
    
    
    164,354
    
    
    
    12.8
    
    
    
    51,321
    
    
    
    4.0
    
    
    
    N/A
    
    
    
    N/ATier 1 capital to total average assets
    
    
    164,354
    
    
    
    10.0
    
    
    
    65,545
    
    
    
    4.0
    
    
    
    N/A
    
    
    
    N/ADecember 31, 2009Total capital to risk weighted assets
    
    $
    170,559
    
    
    
    14.1
    %
    
    $
    96,978
    
    
    
    8.0
    %
    
    
    N/A
    
    
    
    N/ATier 1 capital to risk weighted assets
    
    
    157,343
    
    
    
    13.0
    
    
    
    48,489
    
    
    
    4.0
    
    
    
    N/A
    
    
    
    N/ATier 1 capital to total average assets
    
    
    157,343
    
    
    
    10.1
    
    
    
    62,028
    
    
    
    4.0
    
    
    
    N/A
    
    
    
    N/A
   September 30, 2010
    
    
    December 31, 2009(In thousands)Total capital per financial statements
    
    $
    165,139
    
    
    $
    157,428Accumulated other comprehensive loss
    
    
    432
    
    
    
    1,033Intangible assets
    
    
    (1,149
    )
    
    
    (1,070
    )Servicing assets
    
    
    (68
    )
    
    
    (48
    )Total Tier 1 capital
    
    
    164,354
    
    
    
    157,343Allowance for loan and other losses includible in Tier 2capital
    
    
    14,781
    
    
    
    13,216Total capital per regulatory reporting
    
    $
    179,135
    
    
    $
    170,559
 14. Subsequent Event
 Entry into a Material Definitive Agreement
   25




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Forward-Looking Statements
     
    
    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 Boards 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.
    
    Our inability to recruit and retain additional high-skilled personnel, in
particular the new Chief Executive Officer, could result in disruptions to our business or operations.
    
    Strong competition within our market area may limit our growth and profitability.
 26




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##### Table of Contents




    
    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 and our mutual holding company structure.
    
    Persons who purchase our stock will own a minority of Rockville Financial, Inc.s
common stock and will not be able to exercise voting control over most matters put
to a vote of stockholders.
    
    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 trading volume in our stock is less than in larger publicly traded companies
which can cause price volatility, hinder the ability to sell our common stock and
may lower the market price of the stock.
    
    The Emergency Economic Stabilization Act (EESA) of 2008 has and may continue to
have a significant impact on the banking industry. The Dodd-Frank Wall Street
Reform and Consumer Protection Act was signed into law on July 21, 2010 and is
expected to result in dramatic regulatory changes that will affect the industry in
general, and impact the Companys competitive position in ways that cant be
predicted at this time.
  Overview
   Critical Accounting Policies
   27




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Allowance for Loan Losses:
       28




---



##### Table of Contents



Other-than-Temporary Impairment of Securities:
 Income Taxes:
  Pension and Other Post-retirement Benefits:
 29




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##### Table of Contents



Share-based Compensation:
 Comparison of Operating Results for the Three and Nine Months Ended September 30, 2010 and
2009
  Income Statement Summary
 For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    Change
    
    
    2010
    
    
    2009
    
    
    Change(In thousands)Net interest income
    
    $
    13,553
    
    
    $
    11,300
    
    
    $
    2,253
    
    
    $
    40,110
    
    
    $
    33,864
    
    
    $
    6,246Provision for loan losses
    
    
    1,302
    
    
    
    700
    
    
    
    602
    
    
    
    3,114
    
    
    
    1,303
    
    
    
    1,811Non-interest income
    
    
    2,746
    
    
    
    1,809
    
    
    
    937
    
    
    
    6,798
    
    
    
    5,382
    
    
    
    1,416Non-interest expense
    
    
    9,876
    
    
    
    8,842
    
    
    
    1,034
    
    
    
    28,903
    
    
    
    27,661
    
    
    
    1,242Income before income taxes
    
    
    5,121
    
    
    
    3,567
    
    
    
    1,554
    
    
    
    14,891
    
    
    
    10,282
    
    
    
    4,609Provision for income taxes
    
    
    1,862
    
    
    
    1,227
    
    
    
    635
    
    
    
    5,314
    
    
    
    3,432
    
    
    
    1,882Net income
    
    $
    3,259
    
    
    $
    2,340
    
    
    $
    919
    
    
    $
    9,577
    
    
    $
    6,850
    
    
    $
    2,727
  30




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##### Table of Contents



Net Interest Income Analysis
 Average Balance Sheets, Interest and Yields/Costs:
 31




---



##### Table of Contents



Three Months Ended September 30,2010
    
    
    2009Interest and
    
    
    Yield/
    
    
    
    
    
    
    Interest andAverage Balance
    
    
    Dividends
    
    
    Cost
    
    
    Average Balance
    
    
    Dividends
    
    

Yield/ Cost(Dollars in thousands)Interest-earning assets:Loans receivable, net (1)
    
    $
    1,388,227
    
    
    $
    17,833
    
    
    
    5.14
    %
    
    $
    1,334,786
    
    
    $
    17,222
    
    
    
    5.16
    %Investment securities
    
    
    125,260
    
    
    
    1,235
    
    
    
    3.94
    
    
    
    128,723
    
    
    
    1,461
    
    
    
    4.54Federal Home Loan Bank stock
    
    
    17,007
    
    
    
    
    
    
    
    
    
    
    
    17,007
    
    
    
    
    
    
    
    Other earning assets
    
    
    5,245
    
    
    
    1
    
    
    
    0.08
    
    
    
    1,709
    
    
    
    1
    
    
    
    0.23Total interest-earning assets
    
    
    1,535,739
    
    
    
    19,069
    
    
    
    4.97
    
    
    
    1,482,225
    
    
    
    18,684
    
    
    
    5.04Non-interest-earning assets
    
    
    70,305
    
    
    
    
    
    
    
    
    
    
    
    59,772Total assets
    
    $
    1,606,044
    
    
    
    
    
    
    
    
    
    
    $
    1,541,997Interest-bearing liabilities:NOW and money market accounts
    
    $
    352,016
    
    
    
    389
    
    
    
    0.44
    
    
    $
    322,846
    
    
    
    578
    
    
    
    0.72Savings accounts (5)
    
    
    161,803
    
    
    
    136
    
    
    
    0.34
    
    
    
    136,585
    
    
    
    149
    
    
    
    0.44Time deposits
    
    
    484,208
    
    
    
    2,290
    
    
    
    1.89
    
    
    
    529,702
    
    
    
    4,080
    
    
    
    3.08Total interest-bearing deposits
    
    
    998,027
    
    
    
    2,815
    
    
    
    1.13
    
    
    
    989,133
    
    
    
    4,807
    
    
    
    1.94Advances from the Federal Home Loan Bank
    
    
    272,616
    
    
    
    2,701
    
    
    
    3.96
    
    
    
    256,485
    
    
    
    2,577
    
    
    
    4.02Total interest-bearing liabilities
    
    
    1,270,643
    
    
    
    5,516
    
    
    
    1.74
    %
    
    
    1,245,618
    
    
    
    7,384
    
    
    
    2.37
    %Non-interest-bearing liabilities
    
    
    170,298
    
    
    
    
    
    
    
    
    
    
    
    143,844Total liabilities
    
    
    1,440,941
    
    
    
    
    
    
    
    
    
    
    
    1,389,462Stockholders equity
    
    
    165,103
    
    
    
    
    
    
    
    
    
    
    
    152,535Total liabilities and stockholders equity
    
    $
    1,606,044
    
    
    
    
    
    
    
    
    
    
    $
    1,541,997Net interest income
    
    
    
    
    
    $
    13,553
    
    
    
    
    
    
    
    
    
    
    $
    11,300Net interest rate spread (2)
    
    
    
    
    
    
    
    
    
    
    3.23
    %
    
    
    
    
    
    
    
    
    
    
    2.67
    %Net interest-earning assets (3)
    
    $
    265,096
    
    
    
    
    
    
    
    
    
    
    $
    236,607Net interest margin (4)
    
    
    
    
    
    
    
    
    
    
    3.53
    %
    
    
    
    
    
    
    
    
    
    
    3.05
    %Average interest-earning assets to average interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    120.86
    %
    
    
    
    
    
    
    
    
    
    
    119.00
    %
 
 (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. 32




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##### Table of Contents



Nine Months Ended September 30,2010
    
    
    2009Interest and
    
    
    Yield/
    
    
    
    
    
    
    Interest andAverage Balance
    
    
    Dividends
    
    
    Cost
    
    
    Average Balance
    
    
    Dividends
    
    
    Yield/ Cost(Dollars in thousands)Interest-earning assets:Loans receivable, net (1)
    
    $
    1,369,198
    
    
    $
    52,831
    
    
    
    5.14
    %
    
    $
    1,325,770
    
    
    $
    51,965
    
    
    
    5.23
    %Investment securities
    
    
    122,343
    
    
    
    3,795
    
    
    
    4.14
    
    
    
    145,453
    
    
    
    5,156
    
    
    
    4.73Federal Home Loan Bank stock
    
    
    17,007
    
    
    
    
    
    
    
    
    
    
    
    17,007
    
    
    
    
    
    
    
    Other earning assets
    
    
    6,618
    
    
    
    4
    
    
    
    0.08
    
    
    
    1,048
    
    
    
    1
    
    
    
    0.13Total interest-earning assets
    
    
    1,515,166
    
    
    
    56,630
    
    
    
    4.98
    
    
    
    1,489,278
    
    
    
    57,122
    
    
    
    5.11Non-interest-earning assets
    
    
    67,904
    
    
    
    
    
    
    
    
    
    
    
    58,746Total assets
    
    $
    1,583,070
    
    
    
    
    
    
    
    
    
    
    $
    1,548,024Interest-bearing liabilities:NOW and money market accounts
    
    $
    348,607
    
    
    
    1,182
    
    
    
    0.45
    
    
    $
    305,119
    
    
    
    2,017
    
    
    
    0.88Savings accounts (5)
    
    
    158,607
    
    
    
    410
    
    
    
    0.34
    
    
    
    134,551
    
    
    
    475
    
    
    
    0.47Time deposits
    
    
    483,681
    
    
    
    7,076
    
    
    
    1.95
    
    
    
    529,451
    
    
    
    12,947
    
    
    
    3.26Total interest-bearing deposits
    
    
    990,895
    
    
    
    8,668
    
    
    
    1.17
    
    
    
    969,121
    
    
    
    15,439
    
    
    
    2.12Advances from the Federal Home Loan Bank
    
    
    266,162
    
    
    
    7,852
    
    
    
    3.93
    
    
    
    292,320
    
    
    
    7,819
    
    
    
    3.57Total interest-bearing liabilities
    
    
    1,257,057
    
    
    
    16,520
    
    
    
    1.75
    %
    
    
    1,261,441
    
    
    
    23,258
    
    
    
    2.46
    %Non-interest-bearing liabilities
    
    
    163,565
    
    
    
    
    
    
    
    
    
    
    
    137,014Total liabilities
    
    
    1,420,622
    
    
    
    
    
    
    
    
    
    
    
    1,398,455Stockholders Equity
    
    
    162,448
    
    
    
    
    
    
    
    
    
    
    
    149,569Total liabilities and stockholders
equity
    
    $
    1,583,070
    
    
    
    
    
    
    
    
    
    
    $
    1,548,024Net interest income
    
    
    
    
    
    $
    40,110
    
    
    
    
    
    
    
    
    
    
    $
    33,864Net interest rate spread (2)
    
    
    
    
    
    
    
    
    
    
    3.23
    %
    
    
    
    
    
    
    
    
    
    
    2.65
    %Net interest-earning assets (3)
    
    $
    258,109
    
    
    
    
    
    
    
    
    
    
    $
    227,837Net interest margin (4)
    
    
    
    
    
    
    
    
    
    
    3.53
    %
    
    
    
    
    
    
    
    
    
    
    3.03
    %Average interest-earning assets to average
interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    120.53
    %
    
    
    
    
    
    
    
    
    
    
    118.06
    %
 
 (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. 33




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##### Table of Contents



Rate-Volume Analysis
  Three Months Ended
    
    
    Nine Months EndedSeptember 30, 2010
    
    
    September 30, 2010Compared to
    
    
    Compared toSeptember 30, 2009
    
    
    September 30, 2009Increase (Decrease)
    
    
    
    
    
    
    Increase (Decrease)Due To
    
    
    
    
    
    
    Due ToVolume
    
    
    Rate
    
    
    Net
    
    
    Volume
    
    
    Rate
    
    
    Net(In thousands)Interest and dividend income:Loans receivable
    
    $
    686
    
    
    $
    (75
    )
    
    $
    611
    
    
    $
    1,688
    
    
    $
    (822
    )
    
    $
    866Securities interest, dividends & income from other assets
    
    
    1
    
    
    
    (227
    )
    
    
    (226
    )
    
    
    (575
    )
    
    
    (783
    )
    
    
    (1,358
    )Total earning assets
    
    
    687
    
    
    
    (302
    )
    
    
    385
    
    
    
    1,113
    
    
    
    (1,605
    )
    
    
    (492
    )Interest expense:NOW and money market accounts
    
    
    49
    
    
    
    (238
    )
    
    
    (189
    )
    
    
    255
    
    
    
    (1,090
    )
    
    
    (835
    )Savings accounts
    
    
    25
    
    
    
    (38
    )
    
    
    (13
    )
    
    
    76
    
    
    
    (141
    )
    
    
    (65
    )Time deposits
    
    
    (326
    )
    
    
    (1,464
    )
    
    
    (1,790
    )
    
    
    (1,039
    )
    
    
    (4,832
    )
    
    
    (5,871
    )Total interest-bearing deposits
    
    
    (252
    )
    
    
    (1,740
    )
    
    
    (1,992
    )
    
    
    (708
    )
    
    
    (6,063
    )
    
    
    (6,771
    )FHLB Advances
    
    
    159
    
    
    
    (35
    )
    
    
    124
    
    
    
    (727
    )
    
    
    760
    
    
    
    33Total interest-bearing liabilities
    
    
    (93
    )
    
    
    (1,775
    )
    
    
    (1,868
    )
    
    
    (1,435
    )
    
    
    (5,303
    )
    
    
    (6,738
    )Change in net interest income
    
    $
    780
    
    
    $
    1,473
    
    
    $
    2,253
    
    
    $
    2,548
    
    
    $
    3,698
    
    
    $
    6,246
 Net Interest Income:
   34




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##### Table of Contents



Interest and Dividend Income:
  Interest Expense:
  Provision for Loan Losses:
 35




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##### Table of Contents



Potential problem loans:
  Non-interest Income:
   36




---



##### Table of Contents



Non-interest Expense:
 Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,2010
    
    
    2009
    
    
    Change
    
    
    2010
    
    
    2009
    
    
    Change(In thousands)Salaries and employee benefits
    
    $
    4,958
    
    
    $
    4,710
    
    
    $
    248
    
    
    $
    14,579
    
    
    $
    14,092
    
    
    $
    487Service bureau fees
    
    
    1,020
    
    
    
    952
    
    
    
    68
    
    
    
    3,006
    
    
    
    2,924
    
    
    
    82Occupancy and equipment
    
    
    1,056
    
    
    
    1,127
    
    
    
    (71
    )
    
    
    3,238
    
    
    
    3,324
    
    
    
    (86
    )Professional fees
    
    
    378
    
    
    
    202
    
    
    
    176
    
    
    
    1,136
    
    
    
    903
    
    
    
    233Marketing and promotions
    
    
    247
    
    
    
    149
    
    
    
    98
    
    
    
    918
    
    
    
    767
    
    
    
    151FDIC assessments
    
    
    406
    
    
    
    375
    
    
    
    31
    
    
    
    1,207
    
    
    
    1,874
    
    
    
    (667
    )Other real estate owned
    
    
    498
    
    
    
    11
    
    
    
    487
    
    
    
    965
    
    
    
    11
    
    
    
    954Other
    
    
    1,313
    
    
    
    1,316
    
    
    
    (3
    )
    
    
    3,854
    
    
    
    3,766
    
    
    
    88Total non-interest expense
    
    $
    9,876
    
    
    $
    8,842
    
    
    $
    1,034
    
    
    $
    28,903
    
    
    $
    27,661
    
    
    $
    1,242
   37




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##### Table of Contents



Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,2010
    
    
    2009
    
    
    Change
    
    
    2010
    
    
    2009
    
    
    Change(In thousands)Telephone
    
    $
    51
    
    
    $
    48
    
    
    $
    3
    
    
    $
    162
    
    
    $
    132
    
    
    $
    30Postage
    
    
    104
    
    
    
    106
    
    
    
    (2
    )
    
    
    315
    
    
    
    296
    
    
    
    19Collections
    
    
    44
    
    
    
    167
    
    
    
    (123
    )
    
    
    301
    
    
    
    357
    
    
    
    (56
    )Directors fees and stock expense
    
    
    166
    
    
    
    177
    
    
    
    (11
    )
    
    
    499
    
    
    
    574
    
    
    
    (75
    )Courier services
    
    
    84
    
    
    
    85
    
    
    
    (1
    )
    
    
    239
    
    
    
    249
    
    
    
    (10
    )Mortgage loan servicing
    
    
    73
    
    
    
    52
    
    
    
    21
    
    
    
    209
    
    
    
    205
    
    
    
    4Mortgage appraisal / credit reports
    
    
    117
    
    
    
    85
    
    
    
    32
    
    
    
    270
    
    
    
    260
    
    
    
    10Off balance sheet provision expense
    
    
    14
    
    
    
    (19
    )
    
    
    33
    
    
    
    10
    
    
    
    (57
    )
    
    
    67Dues and subscriptions
    
    
    52
    
    
    
    40
    
    
    
    12
    
    
    
    157
    
    
    
    160
    
    
    
    (3
    )Printing and forms
    
    
    86
    
    
    
    82
    
    
    
    4
    
    
    
    240
    
    
    
    254
    
    
    
    (14
    )Other
    
    
    522
    
    
    
    493
    
    
    
    29
    
    
    
    1,452
    
    
    
    1,336
    
    
    
    116Total other non-interest expense
    
    $
    1,313
    
    
    $
    1,316
    
    
    $
    (3
    )
    
    $
    3,854
    
    
    $
    3,766
    
    
    $
    88
 Income Tax Provision:
  Comparison of Financial Condition at September 30, 2010 and December 31, 2009
 Summary:
   38




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##### Table of Contents



Investment Securities:
 Lending Activities:
 Deposits:
 Liquidity and Capital Resources:
    39




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk
 General:
  Quantitative Analysis
 Income Simulation:
 40




---



##### Table of Contents



Percentage Increase (Decrease) in EstimatedNet Interest IncomeOver 12 Months400 basis point increase in rates
    
    
    11.45
    %50 basis point decrease in rates
    
    
    (0.52
    )
  
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures:
 Changes in Internal Controls:
 41




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##### Table of Contents



Part II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
          42




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##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Issuer Purchases of Equity SecuritiesTotal Number of
    
    
    Maximum Number ofShares Purchased as
    
    
    Shares that May YetPart of Publicly
    
    
    Be Purchased UnderTotal Number of
    
    
    Average Price
    
    
    Announced Plans or
    
    
    the Plans orPeriod
    
    Shares Purchased
    
    
    Paid per Share
    
    
    Programs
    
    
    Programs(1)7/1/10  7/31/10
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    674,7188/1/10  8/31/10
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    674,7189/1/10  9/30/10
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    674,718Total
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    674,718
 
 (1)
    
    Effective January 2008, the Company adopted a plan to repurchase of up to 978,400
of our outstanding shares of common stock on the open market. At September 30, 2010
there were 674,718 shares available to be purchased under this program. 
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Removed and Reserved
 
 Item 5. Other Information
  43




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##### Table of Contents



Item 6. Exhibits
 2.1
    
    Plan of Conversion and Reorganization of Rockville Financial MHC, Inc.
(incorporated herein by reference to Exhibit 2.1 to the Current Report on Form 8-K
filed for Rockville Financial, Inc. filed on September 16, 2010 (File No.
000-51239))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 New, Inc., as amended, initially filed
on September 16, 2010 (File No. 333-169439))3.2
    
    Bylaws of Rockville Financial, Inc. (incorporated herein by reference
to Exhibit 3.2 to the Quarterly Report on Form 10-Q filed for Rockville Financial
New, Inc. on September 16, 2010 (File No. 333-169439))3.2.1
    
    Amendment dated December 12, 2007 to the Bylaws of Rockville
Financial, Inc. (incorporated herein by reference to Exhibit 3.2 to the Current
Report on the Companys Form 8-K filed on December 12, 2007 (File No. 000-51239))3.2.2
    
    Amendment and restatement dated February 13, 2008 to the Bylaws of
Rockville Financial, Inc. (incorporated herein by reference to Exhibit 3.2 to the
Current Report on the Companys Form 8-K filed on February 14, 2008 (File No.
000-51239))3.3
    
    Form of Common Stock Certificate of Rockville Financial, Inc.
filed herewith10.1
    
    Employment Agreement as amended and restated by and among Rockville
Financial, Inc., Rockville Bank and William J. McGurk, effective January 1, 2009
(incorporated herein by reference to Exhibit 10.1 to the Annual Report on the
Companys Form 10-K for the year ended December 31, 2008 filed on March 11, 2009
(File No. 000-51239))10.2
    
    Employment Agreement as amended and restated by and among Rockville
Financial, Inc., Rockville Bank and Joseph F. Jeamel, Jr., effective January 1,
2009 (incorporated herein by reference to Exhibit 10.2 to the Annual Report on the
Companys Form 10-K for the year ended December 31, 2008 filed on March 11, 2009
(File No. 000-51239))10.3
    
    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 the
Companys Form 10-K for the year ended December 31, 2008 filed on March 11, 2009
(File No. 000-51239))10.4
    
    First Amendment to the Employment Agreement by and among Rockville
Financial, Inc. and Rockville Bank and Christopher E. Buchholz as amended and
restated effective as of April 13, 2009 (incorporated herein by reference to
Exhibit 10.4 to the Current Report on the Companys Form 10-Q filed on May 11,
2009 (File No. 000-51239))10.5
    
    Employment Agreement as amended and restated by and among Rockville
Financial, Inc., Rockville Bank and Richard J. Trachimowicz, effective January 1,
2009 (incorporated herein by reference to Exhibit 10.5 to the Annual Report on the
Companys Form 10-K for the year ended December 31, 2008 filed on March 11, 2009
(File No. 000-51239))10.6
    
    Supplemental Savings and Retirement Plan of Rockville Bank as amended
and restated effective December 31, 2007 (incorporated herein by reference to
Exhibit 10.5 to the Current Report on Form 8-K filed for Rockville Financial, Inc.
filed on December 18, 2007 (File No. 000-51239))10.7
    
    Rockville Bank Officer Incentive Compensation Plan (incorporated
herein by reference to Exhibit 10.2.3 to the Companys Annual Report on Form 10-K
for the year ended December 31, 2005 filed on March 31, 2006 (File No. 000-51239))10.8
    
    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, Inc. filed
on September 16, 2010 (File No. 333-169439))
 44




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##### Table of Contents



10.8.1
    
    First Amendment to the Supplemental Executive Retirement Agreement for Joseph F.
Jeamel, Jr. (incorporated herein by reference to Exhibit 10.7.1 to the Current
Report on Form 8-K filed for Rockville Financial, Inc. filed on December 18, 2007
(File No. 000-51239))10.9
    
    Executive Split Dollar Life Insurance Agreement for Joseph F. Jeamel,
Jr. (incorporated herein by reference to Exhibit 10.10 to the Registration
Statement filed on Form S-1 filed for Rockville Financial, Inc. filed on September
16, 2010 (File No. 333-169439))10.10
    
    Rockville Bank Supplemental Executive Retirement Plan as amended and
restated effective December 31, 2007 (incorporated herein by reference to Exhibit
10.9 to the Current Report on Form 8-K filed for Rockville Financial, Inc. filed
on December 18, 2007(File No. 000-51239))10.11
    
    Rockville Financial, Inc. 2006 Stock Incentive Award Plan
(incorporated herein by reference to Appendix B in the Definitive Proxy Statement
on Form 14A for Rockville Financial, Inc. filed on July 3, 2006 (File No.
000-51239))31.1
    
    Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer
filed herewith31.2
    
    Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer
filed herewith32.0
    
    Section 1350 Certification of the Chief Executive Officer and Chief
Financial Officer attached hereto
 45




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##### Table of Contents



SIGNATURES
  Rockville Financial, Inc.By:

    /s/ John T. Lund

John T. LundSVP, Chief Financial Officer and TreasurerDate: November 9, 2010
 46