##### 



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, 2006.
 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 officers)
    
    (Zip Code)
 (860) 291-3600
(Registrants telephone number, including area code)
 þ o
  o o þ
 o þ




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Table of Contents
 PagePart I  FINANCIAL INFORMATIONItem 1.
    
    Interim Financial StatementsCondensed Consolidated Statements of Condition at September 30, 2006
and December 31, 2005 (unaudited)
    
    
    3Condensed Consolidated Statements of Income for the three and nine months ended
September 30, 2006 and 2005 (unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows for the nine months ended
September 30, 2006 and 2005 (unaudited)
    
    
    6Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    16Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    31Item 4.
    
    Controls and Procedures
    
    
    33Part II  OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    33Item 1A.
    
    Risk Factors
    
    
    33Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    34Item 6.
    
    Exhibits
    
    
    34SIGNATURES
    
    
    36Rockville Financial, Inc.
    
    
    2




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Part I  FINANCIAL INFORMATION
 
 Item 1.
Interim Financial Statements:
 Rockville Financial, Inc.
 
 Condensed Consolidated Statements of Condition
(In Thousands, Except Share Amounts)
(Unaudited)
 September 30,
    
    
    December 31,2006
    
    
    2005ASSETSCASH AND CASH EQUIVALENTSCash and due from banks
    
    $
    18,255
    
    
    $
    18,117Short-term investments
    
    
    2,023
    
    
    
    5,494Total cash and cash equivalents
    
    
    20,278
    
    
    
    23,611AVAILABLE FOR SALE SECURITIES-At fair value
    
    
    126,876
    
    
    
    129,049LOANS RECEIVABLE (Net of allowance for loan
losses of $9,686 in 2006 and $8,675 in 2005)
    
    
    1,019,361
    
    
    
    859,700FEDERAL HOME LOAN BANK STOCK
    
    
    9,836
    
    
    
    8,498ACCRUED INTEREST RECEIVABLE
    
    
    4,275
    
    
    
    3,777DEFERRED TAX ASSET-Net
    
    
    3,157
    
    
    
    3,417BANK PREMISES AND EQUIPMENT-Net
    
    
    12,648
    
    
    
    11,317GOODWILL
    
    
    1,070
    
    
    
    1,070CASH SURRENDER VALUE OF BANK OWNED LIFE INSURANCE
    
    
    8,863
    
    
    
    8,615OTHER ASSETS
    
    
    6,792
    
    
    
    7,115TOTAL
    
    $
    1,213,156
    
    
    $
    1,056,169LIABILITIES AND CAPITALLIABILITIESDeposits:Non-interest bearing
    
    $
    88,523
    
    
    $
    85,855Interest bearing
    
    
    771,813
    
    
    
    675,541Total deposits
    
    
    860,336
    
    
    
    761,396MORTGAGORS AND INVESTORS ESCROW ACCOUNTS
    
    
    2,521
    
    
    
    4,794ADVANCES FROM THE FEDERAL HOME LOAN BANK
    
    
    175,650
    
    
    
    130,867PAYABLE FOR SECURITIES PURCHASED
    
    
    9,000
    
    
    
    ACCRUED EXPENSES AND OTHER LIABILITIES
    
    
    8,654
    
    
    
    8,207Total liabilities
    
    
    1,056,161
    
    
    
    905,264COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS EQUITY:Preferred stock (no par value; 1,000,000 shares authorized;
no shares issued and outstanding)
    
    
    
    
    
    
    Common stock (no par value; 29,000,000 shares authorized;
19,435,000 shares issued and outstanding)
    
    
    85,249
    
    
    
    85,249Additional paid-in capital
    
    
    439
    
    
    
    213Unallocated stock held by ESOP
    
    
    (6,660
    )
    
    
    (6,368
    )Retained earnings
    
    
    76,225
    
    
    
    70,764Accumulated other comprehensive income, net of tax
    
    
    1,742
    
    
    
    1,047Total stockholders equity
    
    
    156,995
    
    
    
    150,905TOTAL
    
    $
    1,213,156
    
    
    $
    1,056,169
  Rockville Financial, Inc.
    
    3




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Rockville Financial, Inc.
 
 Condensed Consolidated Statements of Income
(In Thousands, Except Share and Per Share Amounts)
(Unaudited)
 For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005INTEREST AND DIVIDEND INCOME:Loans
    
    $
    15,272
    
    
    $
    10,920
    
    
    $
    42,120
    
    
    $
    30,912Securities-interest
    
    
    1,172
    
    
    
    1,108
    
    
    
    3,624
    
    
    
    3,552Interest bearing deposits
    
    
    29
    
    
    
    31
    
    
    
    80
    
    
    
    76Securities-dividends
    
    
    379
    
    
    
    179
    
    
    
    687
    
    
    
    507Total interest and dividend income
    
    
    16,852
    
    
    
    12,238
    
    
    
    46,511
    
    
    
    35,047INTEREST EXPENSEDeposits
    
    
    5,553
    
    
    
    2,806
    
    
    
    13,802
    
    
    
    7,899Borrowed funds
    
    
    2,005
    
    
    
    1,278
    
    
    
    5,526
    
    
    
    3,760Total interest expense
    
    
    7,558
    
    
    
    4,084
    
    
    
    19,328
    
    
    
    11,659Net interest income
    
    
    9,294
    
    
    
    8,154
    
    
    
    27,183
    
    
    
    23,388PROVISION FOR LOAN LOSSES
    
    
    414
    
    
    
    450
    
    
    
    1,421
    
    
    
    2,050Net interest income after provision
for loan losses
    
    
    8,880
    
    
    
    7,704
    
    
    
    25,762
    
    
    
    21,338NONINTEREST INCOME:Service charges and fees
    
    
    1,149
    
    
    
    1,000
    
    
    
    3,063
    
    
    
    2,721Net gain from sale of securities
    
    
    26
    
    
    
    88
    
    
    
    204
    
    
    
    253Total noninterest income
    
    
    1,175
    
    
    
    1,088
    
    
    
    3,267
    
    
    
    2,974NONINTEREST EXPENSE:Salaries and employee benefits
    
    
    3,488
    
    
    
    3,271
    
    
    
    10,261
    
    
    
    9,517Service bureau fees
    
    
    773
    
    
    
    654
    
    
    
    2,202
    
    
    
    1,996Occupancy and equipment
    
    
    832
    
    
    
    756
    
    
    
    2,454
    
    
    
    2,130Professional fees
    
    
    341
    
    
    
    257
    
    
    
    913
    
    
    
    933Marketing and promotions
    
    
    229
    
    
    
    213
    
    
    
    743
    
    
    
    783Insurance and FDIC assessments
    
    
    51
    
    
    
    48
    
    
    
    155
    
    
    
    155Contribution to Rockville BankCommunity Foundation, Inc.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,887Other
    
    
    1,097
    
    
    
    824
    
    
    
    2,967
    
    
    
    2,536Total noninterest expense
    
    
    6,811
    
    
    
    6,023
    
    
    
    19,695
    
    
    
    21,937INCOME BEFORE INCOME TAXES
    
    
    3,244
    
    
    
    2,769
    
    
    
    9,334
    
    
    
    2,375PROVISION FOR INCOME TAXES
    
    
    1,076
    
    
    
    881
    
    
    
    3,095
    
    
    
    761NET INCOME
    
    $
    2,168
    
    
    $
    1,888
    
    
    $
    6,239
    
    
    $
    1,614
  Rockville Financial, Inc.
    
    4




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Rockville Financial, Inc.
Condensed Consolidated Statements of Income  Continued
(Unaudited)
 For the Three
    
    
    
    
    
    For theFor the Three
    
    Months
    
    For the Nine
    
    Period fromMonths Ended
    
    Ended
    
    Months Ended
    
    May 20, 2005September 30,
    
    Ended September
    
    September 30,
    
    to September2006
    
    30, 2005
    
    2006
    
    30, 2005Net income (loss) per share
(see Note 3):Basic and Diluted
    
    $
    .12
    
    
    $
    .10
    
    
    $
    .33
    
    
    $
    (.01
    )Weighted average shares outstanding:Basic and Diluted
    
    
    18,846,247
    
    
    
    19,030,650
    
    
    
    18,832,125
    
    
    
    19,025,688
  Rockville Financial, Inc.
    
    5




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Rockville Financial, Inc. and Subsidiaries
 
 Condensed Consolidated Statements of Cash Flows
 (Unaudited)
 (In Thousands)
 For the Nine Months EndedSeptember 30,2006
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    6,239
    
    
    $
    1,614Adjustments to reconcile net income to net cash
provided by operating activities:Amortization and accretion of premiums and discounts
on investments
    
    
    136
    
    
    
    267Provision for loan losses
    
    
    1,421
    
    
    
    2,050Contribution to Rockville Bank Community Foundation, Inc.
    
    
    
    
    
    
    3,887Net gain from sale of securities
    
    
    (204
    )
    
    
    (253
    )Compensation expense for ESOP
    
    
    751
    
    
    
    656Depreciation and amortization
    
    
    968
    
    
    
    870Loss on disposal of equipment
    
    
    13
    
    
    
    17Deferred income taxes
    
    
    (99
    )
    
    
    (1,854
    )Increase in cash surrender value of bank owned life insurance
    
    
    (248
    )
    
    
    (244
    )Change in assets and liabilities:Deferred loan fees and premiums
    
    
    (139
    )
    
    
    34Accrued interest receivable
    
    
    (498
    )
    
    
    (407
    )Other assets
    
    
    323
    
    
    
    520Accrued expenses and other liabilities
    
    
    447
    
    
    
    1,794Net cash provided by operating activities
    
    
    9,110
    
    
    
    8,951CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from sales of available for sale securities
    
    
    3,030
    
    
    
    4,753Proceeds from maturities of available for sale securities
    
    
    13,115
    
    
    
    9,601Principal payments on available for sale mortgage-backed
securities
    
    
    11,237
    
    
    
    12,456Purchase of available for sale securities
    
    
    (15,088
    )
    
    
    (16,119
    )Purchase of Federal Home Loan Bank Stock
    
    
    (1,338
    )
    
    
    (1,086
    )Proceeds from the sale of loans
    
    
    948
    
    
    
    6,328Net increase in loans
    
    
    (161,891
    )
    
    
    (129,307
    )Purchases of bank premises and equipment
    
    
    (2,312
    )
    
    
    (2,396
    )Proceeds from the surrender of split dollar life insurance
    
    
    
    
    
    
    1,317Net cash used in investing activities
    
    
    (152,299
    )
    
    
    (114,453
    )CASH FLOWS FROM FINANCING ACTIVITIES:Net increase in non-interest bearing deposits
    
    
    2,668
    
    
    
    1,481Net increase in interest bearing deposits
    
    
    96,272
    
    
    
    26,791Decrease in mortgagors and investors escrow accounts
    
    
    (2,273
    )
    
    
    (1,716
    )Proceeds from Federal Home Loan Bank advances
    
    
    54,900
    
    
    
    26,000Repayments of Federal Home Loan Bank advances
    
    
    (10,117
    )
    
    
    (21,110
    )Net proceeds from common stock offering
    
    
    
    
    
    
    81,299Cash dividends paid on common stock
    
    
    (777
    )
    
    
    Acquisition of common stock by ESOP
    
    
    (817
    )
    
    
    (4,803
    )Net cash provided by financing activities
    
    
    139,856
    
    
    
    107,942NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS
    
    
    (3,333
    )
    
    
    2,440CASH AND CASH EQUIVALENTS  Beginning of year
    
    
    23,611
    
    
    
    22,100CASH AND CASH EQUIVALENTS  End of period
    
    $
    20,278
    
    
    $
    24,540SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATIONCash paid during the period for:Interest
    
    $
    19,267
    
    
    $
    11,611Income taxes
    
    
    3,636
    
    
    
    1,700
  Rockville Financial, Inc.
    
    6




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Rockville Financial, Inc. and Subsidiaries
 
 Notes to Unaudited Condensed Consolidated Financial Statements
 1.
    
    Basis of Presentation and Principles of ConsolidationThe condensed consolidated interim financial statements and the accompanying notes
presented in this report include the accounts of Rockville Financial, Inc. and its
wholly-owned subsidiary Rockville Bank, and the Banks wholly-owned subsidiaries, The SBR
Mortgage Company, The Savings Bank of Rockville Investment Company and Rockville Financial
Services, Inc.The condensed 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 condensed financial
statements. All significant intercompany accounts and transactions have been eliminated in
consolidation. The results of operations for the three and nine months ended September 30,
2006 are not necessarily indicative of the results that may be expected for the year ending
December 31, 2006. These condensed consolidated financial statements should be read in
conjunction with the Companys 2005 consolidated financial statements and notes thereto
included in the Companys Annual Report on Form 10-K for the year ended December 31, 2005.The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the dates of the condensed 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, determination of pension
assumptions, the valuation of deferred tax assets and the evaluation of available for sale
securities for other than temporary impairment.2.
    
    Earnings Per ShareIncome earned during the year prior to May 20, 2005 is not included in the earnings per
share calculation because the shares of the Companys common stock were not issued until May
20, 2005; therefore, per share information for prior periods is not meaningful.
 Rockville Financial, Inc.
    
    7




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The following tables set forth the calculation of basic and diluted earnings per share for
the three and nine months ended September 30, 2006 and the period from May 20, 2005 to
September 30, 2005:
 For the
    
    
    For theThree
    
    
    ThreeMonths
    
    
    MonthsEnded
    
    
    EndedSeptember
    
    
    September30, 2006
    
    
    30, 2005(Dollars in thousands,except per share information)Net income
    
    $
    2,168
    
    
    $
    1,888Weighted average shares outstanding
    
    
    19,435,000
    
    
    
    19,435,000Less: Unallocated weighted average
ESOP shares
    
    
    (699,659
    )
    
    
    (439,238
    )Plus: Committed ESOP Shares
    
    
    110,906
    
    
    
    34,888Basic and Diluted shares
    
    
    18,846,247
    
    
    
    19,030,650Earnings per share:Basic and Diluted
    
    $
    .12
    
    
    $
    .10
 For the
    
    
    For theNine Months
    
    
    Period fromEnded
    
    
    May 20, 2005September
    
    
    to September30, 2006
    
    
    30, 2005(Dollars in thousands,except per share information)Net income (loss)
    
    $
    6,239
    
    
    $
    (142
    )Weighted average shares outstanding
    
    
    19,435,000
    
    
    
    19,435,000Less: Unallocated weighted average
ESOP shares
    
    
    (696,462
    )
    
    
    (438,620
    )Plus: Committed ESOP Shares
    
    
    93,587
    
    
    
    29,308Basic and Diluted shares
    
    
    18,832,125
    
    
    
    19,025,688Earnings (loss) per share:Basic and Diluted
    
    $
    .33
    
    
    $
    (.01
    )
 Rockville Financial, Inc.
    
    8




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3.
    
    Stock-Based CompensationOn January 1, 2006, the Company adopted Statement of Financial Accounting Standards
No. 123 (revised 2004), Share-Based Payment (SFAS 123R). SFAS 123R eliminates the
alternative of applying the intrinsic value measurement provisions of Opinion 25 to stock
compensation awards issued to employees. SFAS 123R now requires companies to measure the
cost of employee services received in exchange for an award of equity instruments based on
the grant-date estimated fair value of the award. That estimated cost will be recognized
over the period during which an employee is required to provide services in exchange for the
award, known as the requisite service period (usually the vesting period). SFAS 123R
requires the use of the Modified Prospective Application Method. Under this method, SFAS
123R is applied to new awards and to awards modified, repurchased or cancelled after the
effective date. Additionally, compensation cost for the portion of awards for which the
requisite service has not been rendered (such as unvested options) that are outstanding as
of the date of adoption shall be recognized as the remaining requisite services are
rendered. The compensation cost relating to unvested awards at the date of adoption shall be
based on the grant-date estimated fair value of those awards as calculated under the pro
forma disclosure provisions of SFAS 123. The adoption of these new rules did not impact the
Companys condensed consolidated financial statements since the Company had not issued any
stock options or restricted stock as of the adoption date.The Rockville Financial, Inc. 2006 Stock Incentive Award Plan (the Plan) was approved by
shareholders at the Companys annual meeting on August 22, 2006. The Plan provides for the
grant of incentive stock options which satisfy the requirements of Section 422 of the
Internal Revenue Code (ISOs), non-qualified stock options which do not satisfy the
requirements for ISO treatment (NQSOs), stock appreciation rights (SARs), restricted
stock, restricted stock units and other stock-based awards
(Stock Awards) and performance shares and performance units (Performance Awards). The Plan limits the total amount of
Company shares which may be used for Stock Awards and Performance Awards to 349,830 shares
and for ISOs, NQSOs and SARs to 874,575 shares. The Company has reserved 1,224,405 shares of
common stock for issuance under the Plan. Shares of common stock to be issued under the Plan
may be either authorized but un-issued shares, or reacquired shares
held by the Company. Any shares subject to a Stock Award which expires, terminates or is forfeited will again be
available for issuance under the Plan. No awards have been granted as of September 30, 2006.4.
    
    Recent Accounting PronouncementsIn March 2006, the FASB issued SFAS No. 156,Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities  an Amendment of FASB Statement
No.140, which requires that all separately recognized servicing rights be initially
measured at fair value, if practicable. For each class of separately recognized service
assets and liabilities, the Statement will permit an entity to choose either of the
following subsequent measurement methods: (1) amortize servicing assets or liabilities in
proportion to and over the period of estimated net servicing income or net servicing loss or
(2) report servicing assets or liabilities at fair value at each reporting date and report
changes in fair value in earnings in the period in which the changes occur. The Statement
also requires additional disclosures for all separately recognized servicing rights. The
Statement is effective for new transactions occurring and for subsequent measurement after
the first fiscal year that begins after September 15, 2006, which is January 1, 2007 for the
Company. The adoption of these rules is not expected to have a material impact on the
Companys consolidated financial statements.In July 2006, FASB Interpretation (FIN)
No. 48,Accounting for Uncertainty in Income Taxes
  An Interpretation of FASB Statement No. 109, was issued. FIN 48 clarifies the accounting
for uncertainty in income taxes recognized in an enterprises financial statements in
accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN No. 48 also
prescribes a recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return.
FIN No. 48 also provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition. The evaluation of a tax position
in accordance with FIN 48 is a two-step process. The first step is a recognition process
whereby the Company determines whether it is more likely than not that a tax position will
be sustained upon examination, including resolution of any related appeals or litigation
processes, based on the technical merits of the position. In evaluating whether a tax
position has met the more-likely-than-not recognition threshold, the Company must presume
that the position will be examined by the appropriate taxing authority that has full
knowledge of all relevant
 Rockville Financial, Inc.
    
    9




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 ).
  
 5.
    
    Benefit PlansThe Company sponsors a noncontributory defined benefit pension plan (the Pension
Plan) covering all full-time employees hired before January 1, 2005. Participants become
100% vested after five years of employment. The Companys funding practice has generally
been to contribute annually the maximum amount that can be deducted for Federal income tax
purposes, while meeting the minimum funding standards established by the Employee Retirement
Income Security Act of 1974 (ERISA), as amended.
 Rockville Financial, Inc.
    
    10




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Components of Net Periodic Benefit Cost
 Pension Plans
    
    
    Postretirement BenefitsThree Months Ended September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(In thousands)Service cost
    
    $
    204
    
    
    $
    200
    
    
    $
    6
    
    
    $
    2Interest cost
    
    
    222
    
    
    
    182
    
    
    
    33
    
    
    
    19Expected return on
plan assets
    
    
    (244
    )
    
    
    (210
    )
    
    
    
    
    
    
    Amortization of net
actuarial losses
    
    
    124
    
    
    
    84
    
    
    
    30
    
    
    
    8Amortization of prior
service cost
    
    
    155
    
    
    
    155
    
    
    
    5
    
    
    
    Net periodic benefit cost
    
    $
    461
    
    
    $
    411
    
    
    $
    74
    
    
    $
    29
 Rockville Financial, Inc.
    
    11




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Pension Plans
    
    
    Postretirement BenefitsNine Months Ended September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(In thousands)Service cost
    
    $
    603
    
    
    $
    600
    
    
    $
    12
    
    
    $
    6Interest cost
    
    
    666
    
    
    
    546
    
    
    
    80
    
    
    
    58Expected return on
plan assets
    
    
    (731
    )
    
    
    (630
    )
    
    
    
    
    
    
    Amortization of net
actuarial losses
    
    
    372
    
    
    
    252
    
    
    
    61
    
    
    
    24Amortization of prior
service cost (benefits)
    
    
    465
    
    
    
    465
    
    
    
    15
    
    
    
    (1
    )Net periodic benefit cost
    
    $
    1,375
    
    
    $
    1,233
    
    
    $
    168
    
    
    $
    87
  4 01(k) Plan:
 Employee Stock Ownership Plan:
   Rockville Financial, Inc.
    
    12




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##### 



6.
    
    Other Comprehensive (Loss) IncomeThe following table summarizes the components of other comprehensive (loss) income and
the related tax effects for the three months and nine months ended September 30, 2006 and
2005:
 Three Months Ended September 30, 2006Before-Tax
    
    
    
    
    
    
    Net-of-TaxAmount
    
    
    Taxes
    
    
    Amount(In thousands)Unrealized gains arising during the period
    
    $
    1,411
    
    
    $
    (480
    )
    
    $
    931Add reclassification adjustment for net gain
from
sale of securities recognized in net income
    
    
    26
    
    
    
    (9
    )
    
    
    17Total other comprehensive income
    
    $
    1,437
    
    
    $
    (489
    )
    
    $
    948
 Three Months Ended September 30, 2005Before-Tax Amount
    
    
    Taxes
    
    
    Net-of-Tax Amount(In thousands)Unrealized losses arising during the period
    
    $
    (147
    )
    
    $
    50
    
    
    $
    (97
    )Add reclassification adjustment for net gain
from
sale of securities recognized in net income
    
    
    88
    
    
    
    (30
    )
    
    
    58Total other comprehensive loss
    
    $
    (59
    )
    
    $
    20
    
    
    $
    (39
    )
 Nine Months Ended September 30, 2006Before-Tax Amount
    
    
    Taxes
    
    
    Net-of-Tax Amount(In thousands)Unrealized gains arising during the period
    
    $
    849
    
    
    $
    (289
    )
    
    $
    560Add reclassification adjustment for net gain
from
sale of securities recognized in net income
    
    
    204
    
    
    
    (69
    )
    
    
    135Total other comprehensive income
    
    $
    1,053
    
    
    $
    (358
    )
    
    $
    695
 Nine Months Ended September 30, 2005Before-Tax Amount
    
    
    Taxes
    
    
    Net-of-TaxAmount(In thousands)Unrealized losses arising during the period
    
    $
    (1,506
    )
    
    $
    512
    
    
    $
    (994
    )Add reclassification adjustment for net gain
from
sale of securities recognized in net income
    
    
    253
    
    
    
    (86
    )
    
    
    167Total other comprehensive loss
    
    $
    (1,253
    )
    
    $
    426
    
    
    $
    (827
    )
 Rockville Financial, Inc.
    
    13




---



##### 



7.
    
    Commitments and ContingenciesFinancial Instruments With Off-Balance Sheet RiskIn the normal course of business, the Company is a party to financial instruments with
off-balance sheet risk to meet the financing needs of its customers. These financial
instruments include commitments to extend credit, undisbursed portions of construction
loans, unused commercial and consumer lines of credit and standby letters of credit.
Commitments generally have fixed expiration dates or other termination clauses and may
require payment of a fee by the customer. Standby letters of credit are conditional
commitments issued by the Company to guarantee the performance of a customer to a third
party. Since these commitments could expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. These commitments involve, to
varying degrees, elements of credit and interest rate risk in excess of the amounts
recognized in the statements of financial condition. The contractual amounts of commitments
to extend credit represent the amounts of potential accounting loss should the contract be
fully drawn upon, the customer default, and the value of any existing collateral obligations
become worthless as it may for on-balance sheet instruments. The Company evaluates each
customers creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Company upon extension of credit, is based on managements credit
evaluation.Financial instruments whose contract amounts represent credit risk are as follows at
September 30, 2006 and December 31, 2005:
 September 30,
    
    
    December 31,2006
    
    
    2005(In thousands)Commitments to extend credit:Future loan commitments
    
    $
    39,353
    
    
    $
    51,964Undisbursed construction loans
    
    
    99,791
    
    
    
    64,143Undisbursed home equity lines of credit
    
    
    101,781
    
    
    
    82,119Undisbursed commercial lines of credit
    
    
    54,862
    
    
    
    17,127Standby letters of credit
    
    
    14,017
    
    
    
    10,107Unused checking overdraft lines of credit
    
    
    101
    
    
    
    98$
    309,905
    
    
    $
    225,558
 8.
    
    Legal MattersThe Company is involved in various legal proceedings which have arisen in the normal
course of business. Management believes that resolution of these matters will not have a
material effect on the Companys financial condition or results of operations.9.
    
    Regulatory MattersThe 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 Companys financial
statements. The regulations require the Company and the Bank meet specific capital
guidelines that involve quantitative measures of the Companys and the Banks assets,
liabilities, and certain off-balance sheet items, as calculated under regulatory accounting
practices. The Companys and the Banks capital amounts and classification are also subject
to qualitative judgments by the regulators about components, risk weightings, and other
factors. The Bank was classified at its most recent notification as well capitalized. At
September 30, 2006, the Company and the Bank exceeded all regulatory capital requirements
and are considered well capitalized under regulatory guidelines.
 Rockville Financial, Inc.
    
    14




---



##### 



To Be WellFor Capital
    
    
    Capitalized UnderAdequacy
    
    
    Prompt CorrectiveActual
    
    
    Purposes
    
    
    Action ProvisionsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio(Dollars in Thousands)Rockville Bank:September 30, 2006Total capital to risk weighted assets
    
    $
    125,192
    
    
    
    13.7
    %
    
    $
    73,105
    
    
    
    8.0
    %
    
    $
    91,381
    
    
    
    10.0
    %Tier I capital to risk weighted assets
    
    
    115,126
    
    
    
    12.6
    
    
    
    36,548
    
    
    
    4.0
    
    
    
    54,822
    
    
    
    6.0Tier I capital to total average assets
    
    
    115,126
    
    
    
    9.8
    
    
    
    46,990
    
    
    
    4.0
    
    
    
    58,738
    
    
    
    5.0Rockville Bank:December 31, 2005Total capital to risk weighted assets
    
    $
    117,882
    
    
    
    15.5
    %
    
    $
    60,842
    
    
    
    8.0
    %
    
    $
    76,053
    
    
    
    10.0
    %Tier I capital to risk weighted assets
    
    
    108,898
    
    
    
    14.3
    
    
    
    30,461
    
    
    
    4.0
    
    
    
    45,692
    
    
    
    6.0Tier I capital to total average assets
    
    
    108,898
    
    
    
    10.6
    
    
    
    41,094
    
    
    
    4.0
    
    
    
    51,367
    
    
    
    5.0Rockville Financial, Inc.:September 30, 2006Total capital to risk weighted assets
    
    $
    162,480
    
    
    
    17.8
    %
    
    $
    73,025
    
    
    
    8.0
    %
    
    $
    91,281
    
    
    
    10.0
    %Tier I capital to risk weighted assets
    
    
    152,414
    
    
    
    16.7
    
    
    
    36,506
    
    
    
    4.0
    
    
    
    54,760
    
    
    
    6.0Tier I capital to total average assets
    
    
    152,414
    
    
    
    12.9
    
    
    
    47,260
    
    
    
    4.0
    
    
    
    59,075
    
    
    
    5.0Rockville Financial, Inc.:December 31, 2005Total capital to risk weighted assets
    
    $
    156,000
    
    
    
    20.4
    %
    
    $
    61,176
    
    
    
    8.0
    %
    
    $
    76,471
    
    
    
    10.0
    %Tier I capital to risk weighted assets
    
    
    147,016
    
    
    
    19.3
    
    
    
    30,470
    
    
    
    4.0
    
    
    
    45,704
    
    
    
    6.0Tier I capital to total average assets
    
    
    147,016
    
    
    
    14.3
    
    
    
    41,123
    
    
    
    4.0
    
    
    
    51,404
    
    
    
    5.0
   Rockville Financial, Inc.
    
    15




---



##### 



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 the Companys business.
    
    The ability to increase market share and control expenses may be more difficult than anticipated.
    
    Competitive pressures among financial services companies may increase significantly.
    
    Changes in laws and regulatory requirements (including those concerning taxes,
banking, securities and insurance) may adversely affect the Company or its
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 be unable to leverage stock sale proceeds efficiently and effectively.
    
    The Company may not manage the risks involved in the foregoing as well as anticipated.
    
    The Companys recently opened new branches may not become profitable as soon as
anticipated, if at all.
   Rockville Financial, Inc.
    
    16




---



##### 



Overview
   Critical Accounting Policies
 Allowance for Loan Losses:
    Rockville Financial, Inc.
    
    17




---



##### 



Other than Temporary Impairment of Securities:
  Income Taxes:
 Pension and Other Postretirement Benefits:
  Rockville Financial, Inc.
    
    18




---



##### 



Comparison of Operating Results for the Three Months and Nine Months Ended September 30,
2006 and 2005
   Rockville Financial, Inc.
    
    19




---



##### 



Income Statement Summary
 For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    Change
    
    
    2006
    
    
    2005
    
    
    Change(In thousands)Net interest income
    
    $
    9,294
    
    
    $
    8,154
    
    
    $
    1,140
    
    
    $
    27,183
    
    
    $
    23,388
    
    
    $
    3,795Provision for loan losses
    
    
    414
    
    
    
    450
    
    
    
    36
    
    
    
    1,421
    
    
    
    2,050
    
    
    
    629Noninterest income
    
    
    1,175
    
    
    
    1,088
    
    
    
    87
    
    
    
    3,267
    
    
    
    2,974
    
    
    
    293Operating expenses
    
    
    6,811
    
    
    
    6,023
    
    
    
    (788
    )
    
    
    19,695
    
    
    
    18,050
    
    
    
    (1,645
    )Contribution to RockvilleCommunity Foundation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,887
    
    
    
    3,887Income before income taxes
    
    
    3,244
    
    
    
    2,769
    
    
    
    475
    
    
    
    9,334
    
    
    
    2,375
    
    
    
    6,959Provision for income taxes
    
    
    (1,076
    )
    
    
    (881
    )
    
    
    (195
    )
    
    
    (3,095
    )
    
    
    (761
    )
    
    
    (2,334
    )Net income
    
    $
    2,168
    
    
    $
    1,888
    
    
    $
    280
    
    
    $
    6,239
    
    
    $
    1,614
    
    
    $
    4,625
      Rockville Financial, Inc.
    
    20




---



##### 



Net Interest Income Analysis
 Average Balance Sheets, Interest and Yields/Costs:
  Rockville Financial, Inc.
    
    21




---



##### 



Three Months Ended September 30,2006
    
    
    2005InterestAverage
    
    
    Interest and
    
    
    Yield/
    
    
    Average
    
    
    andBalance
    
    
    Dividends
    
    
    Cost
    
    
    Balance
    
    
    Dividends
    
    
    Yield/ Cost(Dollars in thousands)Interest-earning assets:Loans receivable, net
    
    $
    993,703
    
    
    $
    15,272
    
    
    
    6.15
    %
    
    $
    796,165
    
    
    $
    10,920
    
    
    
    5.49
    %Available for sale securities
    
    
    120,991
    
    
    
    1,284
    
    
    
    4.25
    
    
    
    122,081
    
    
    
    1,196
    
    
    
    3.92Federal Home Loan Bank stock
    
    
    9,836
    
    
    
    268
    
    
    
    10.90
    
    
    
    8,498
    
    
    
    91
    
    
    
    4.28Other earning assets
    
    
    2,511
    
    
    
    28
    
    
    
    4.46
    
    
    
    3,662
    
    
    
    31
    
    
    
    3.33Total interest-earning assets
    
    
    1,127,041
    
    
    
    16,852
    
    
    
    5.98
    
    
    
    930,406
    
    
    
    12,238
    
    
    
    5.26Noninterest-earning assets
    
    
    53,327
    
    
    
    
    
    
    
    
    
    
    
    45,276Total assets
    
    $
    1,180,368
    
    
    
    
    
    
    
    
    
    
    $
    975,682Interest-bearing liabilities:NOW and money market accounts
    
    $
    183,666
    
    
    
    727
    
    
    
    1.58
    
    
    $
    179,521
    
    
    
    510
    
    
    
    1.14Savings accounts
    
    
    134,952
    
    
    
    207
    
    
    
    0.61
    
    
    
    164,556
    
    
    
    251
    
    
    
    0.61Time deposits
    
    
    435,962
    
    
    
    4,612
    
    
    
    4.23
    
    
    
    275,767
    
    
    
    2,036
    
    
    
    2.95Total interest-bearing deposits
    
    
    754,580
    
    
    
    5,546
    
    
    
    2.94
    
    
    
    619,844
    
    
    
    2,797
    
    
    
    1.81Mortgagors and investors escrow accounts
    
    
    1,704
    
    
    
    7
    
    
    
    1.64
    
    
    
    2,002
    
    
    
    9
    
    
    
    1.80Advances from the Federal Home Loan Bank
    
    
    171,559
    
    
    
    2,005
    
    
    
    4.67
    
    
    
    118,649
    
    
    
    1,278
    
    
    
    4.31Total interest-bearing liabilities
    
    
    927,843
    
    
    
    7,558
    
    
    
    3.26
    %
    
    
    740,495
    
    
    
    4,084
    
    
    
    2.21
    %Noninterest-bearing liabilities
    
    
    96,254
    
    
    
    
    
    
    
    
    
    
    
    85,197Total liabilities
    
    
    1,024,097
    
    
    
    
    
    
    
    
    
    
    
    825,692Capital
    
    
    156,271
    
    
    
    
    
    
    
    
    
    
    
    149,990Total liabilities and capital
    
    $
    1,180,368
    
    
    
    
    
    
    
    
    
    
    $
    975,682Net interest income
    
    
    
    
    
    $
    9,294
    
    
    
    
    
    
    
    
    
    
    $
    8,154Net interest rate spread (1)
    
    
    
    
    
    
    
    
    
    
    2.72
    %
    
    
    
    
    
    
    
    
    
    
    3.05
    %Net interest-earning assets (2)
    
    $
    199,198
    
    
    
    
    
    
    
    
    
    
    $
    189,911Net interest margin (3)
    
    
    
    
    
    
    
    
    
    
    3.30
    %
    
    
    
    
    
    
    
    
    
    
    3.51
    %Average interest-earning assets toaverage interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    121.47
    %
    
    
    
    
    
    
    
    
    
    
    125.65
    %
 
 (1)
    
    Net interest rate spread represents the difference between the yield on average
interest-earning assets and the cost of average interest-bearing liabilities.(2)
    
    Net interest-earning assets represent total interest-earning assets less total
interest-bearing liabilities.(3)
    
    Net interest margin represents the annualized net interest income divided by
average total interest-earning assets. Rockville Financial, Inc.
    
    22




---



##### 



Nine Months Ended September 30,2006
    
    
    2005Average
    
    
    Interest and
    
    
    Yield/
    
    
    Average
    
    
    Interest and
    
    
    Yield/Balance
    
    
    Dividends
    
    
    Cost
    
    
    Balance
    
    
    Dividends
    
    
    Cost(Dollars in thousands)Interest-earning assets:Loans receivable, net
    
    $
    938,159
    
    
    $
    42,120
    
    
    
    5.99
    %
    
    $
    758,073
    
    
    $
    30,912
    
    
    
    5.44
    %Available for sale securities
    
    
    125,370
    
    
    
    3,932
    
    
    
    4.18
    
    
    
    127,911
    
    
    
    3,804
    
    
    
    3.96Federal Home Loan Bank stock
    
    
    9,349
    
    
    
    379
    
    
    
    5.41
    
    
    
    8,118
    
    
    
    255
    
    
    
    4.18Other earning assets
    
    
    2,864
    
    
    
    80
    
    
    
    3.72
    
    
    
    3,697
    
    
    
    76
    
    
    
    2.74Total interest-earning assets
    
    
    1,075,742
    
    
    
    46,511
    
    
    
    5.76
    
    
    
    897,799
    
    
    
    35,047
    
    
    
    5.20Noninterest-earning assets
    
    
    51,959
    
    
    
    
    
    
    
    
    
    
    
    45,023Total assets
    
    $
    1,127,701
    
    
    
    
    
    
    
    
    
    
    $
    942,822Interest-bearing liabilities:NOW and money market accounts
    
    $
    188,016
    
    
    
    2,167
    
    
    
    1.54
    
    
    $
    179,956
    
    
    
    1,477
    
    
    
    1.09Savings accounts
    
    
    142,275
    
    
    
    647
    
    
    
    0.61
    
    
    
    166,348
    
    
    
    755
    
    
    
    0.60Time Deposits
    
    
    383,622
    
    
    
    10,955
    
    
    
    3.81
    
    
    
    276,321
    
    
    
    5,637
    
    
    
    2.72Total interest-bearing deposits
    
    
    713,913
    
    
    
    13,769
    
    
    
    2.57
    
    
    
    622,625
    
    
    
    7,869
    
    
    
    1.69Mortgagors and investors escrow accounts
    
    
    2,645
    
    
    
    33
    
    
    
    1.67
    
    
    
    2,501
    
    
    
    30
    
    
    
    1.61Advances from the Federal Home Loan Bank
    
    
    163,210
    
    
    
    5,526
    
    
    
    4.51
    
    
    
    120,783
    
    
    
    3,760
    
    
    
    4.15Total interest-bearing liabilities
    
    
    879,768
    
    
    
    19,328
    
    
    
    2.93
    %
    
    
    745,909
    
    
    
    11,659
    
    
    
    2.08
    %Noninterest-bearing liabilities
    
    
    93,857
    
    
    
    
    
    
    
    
    
    
    
    88,266Total liabilities
    
    
    973,625
    
    
    
    
    
    
    
    
    
    
    
    834,175Capital
    
    
    154,076
    
    
    
    
    
    
    
    
    
    
    
    108,647Total liabilities and capital
    
    $
    1,127,701
    
    
    
    
    
    
    
    
    
    
    $
    942,822Net interest income
    
    
    
    
    
    $
    27,183
    
    
    
    
    
    
    
    
    
    
    $
    23,388Net interest rate spread (1)
    
    
    
    
    
    
    
    
    
    
    2.83
    %
    
    
    
    
    
    
    
    
    
    
    3.12
    %Net interest-earning assets (2)
    
    $
    195,974
    
    
    
    
    
    
    
    
    
    
    $
    151,890Net interest margin (3)
    
    
    
    
    
    
    
    
    
    
    3.37
    %
    
    
    
    
    
    
    
    
    
    
    3.47
    %Average interest-earning assets to
average interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    122.28
    %
    
    
    
    
    
    
    
    
    
    
    120.36
    %
 
 (1)
    
    Net interest rate spread represents the difference between the yield on average
interest-earning assets and the cost of average interest-bearing liabilities.(2)
    
    Net interest-earning assets represent total interest-earning assets less total
interest-bearing liabilities.(3)
    
    Net interest margin represents the annualized net interest income divided by
average total interest-earning assets. Rockville Financial, Inc.
    
    23




---



##### 



Rate Volume Analysis
  Three Months Ended
    
    
    Nine Months EndedSeptember 30, 2006
    
    
    September 30, 2006Compared to
    
    
    Compared toSeptember 30, 2005
    
    
    September 30, 2005Increase (Decrease)
    
    
    
    
    
    
    Increase (Decrease)Due To
    
    
    
    
    
    
    Due ToVolume
    
    
    Rate
    
    
    Net
    
    
    Volume
    
    
    Rate
    
    
    Net(Dollars in thousands)Interest and dividend income:Loans receivable
    
    $
    2,929
    
    
    $
    1,423
    
    
    $
    4,352
    
    
    $
    7,862
    
    
    $
    3,346
    
    
    $
    11,208Securities interest, dividends &
income from other assets
    
    
    (60
    )
    
    
    322
    
    
    
    262
    
    
    
    (170
    )
    
    
    426
    
    
    
    256Total earning assets
    
    
    2,869
    
    
    
    1,745
    
    
    
    4,614
    
    
    
    7,692
    
    
    
    3,772
    
    
    
    11,464Interest expense:NOW and money market accounts
    
    
    12
    
    
    
    205
    
    
    
    217
    
    
    
    68
    
    
    
    622
    
    
    
    690Savings accounts
    
    
    (52
    )
    
    
    6
    
    
    
    (46
    )
    
    
    (129
    )
    
    
    24
    
    
    
    (105
    )Time deposits
    
    
    1,476
    
    
    
    1,100
    
    
    
    2,576
    
    
    
    2,621
    
    
    
    2,697
    
    
    
    5,318Total interest-bearing deposits
    
    
    1,436
    
    
    
    1,311
    
    
    
    2,747
    
    
    
    2,560
    
    
    
    3,343
    
    
    
    5,903FHLB Advances
    
    
    611
    
    
    
    116
    
    
    
    727
    
    
    
    1,416
    
    
    
    350
    
    
    
    1,766Total interest bearing liabilities
    
    
    2,047
    
    
    
    1,427
    
    
    
    3,474
    
    
    
    3,976
    
    
    
    3,693
    
    
    
    7,669Change in net interest income
    
    $
    822
    
    
    $
    318
    
    
    $
    1,140
    
    
    $
    3,716
    
    
    $
    79
    
    
    $
    3,795
 Net Interest Income:
  Rockville Financial, Inc.
    
    24




---



##### 



Interest and Dividend Income:
  Interest Expense:
  Rockville Financial, Inc.
    
    25




---



##### 



Provision for Loan Losses:
 Noninterest Income:
   Noninterest Expense:
 Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,2006
    
    
    2005
    
    
    Change
    
    
    2006
    
    
    2005
    
    
    Change(In thousands)Salaries and employee benefits
    
    $
    3,488
    
    
    $
    3,271
    
    
    $
    217
    
    
    $
    10,261
    
    
    $
    9,517
    
    
    $
    744Service bureau fees
    
    
    773
    
    
    
    654
    
    
    
    119
    
    
    
    2,202
    
    
    
    1,996
    
    
    
    206Occupancy and equipment
    
    
    832
    
    
    
    756
    
    
    
    76
    
    
    
    2,454
    
    
    
    2,130
    
    
    
    324Professional fees
    
    
    341
    
    
    
    257
    
    
    
    84
    
    
    
    913
    
    
    
    933
    
    
    
    (20
    )Marketing and promotions
    
    
    229
    
    
    
    213
    
    
    
    16
    
    
    
    743
    
    
    
    783
    
    
    
    (40
    )Insurance and FDIC
Assessments
    
    
    51
    
    
    
    48
    
    
    
    3
    
    
    
    155
    
    
    
    155
    
    
    
    Contribution to Rockville Bank
Community Foundation, Inc.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,887
    
    
    
    (3,887
    )Other
    
    
    1,097
    
    
    
    824
    
    
    
    273
    
    
    
    2,967
    
    
    
    2,536
    
    
    
    431Total noninterest expense
    
    $
    6,811
    
    
    $
    6,023
    
    
    $
    788
    
    
    $
    19,695
    
    
    $
    21,937
    
    
    $
    (2,242
    )
 Rockville Financial, Inc.
    
    26




---



##### 



Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,2006
    
    
    2005
    
    
    Change
    
    
    2006
    
    
    2005
    
    
    Change(In thousands)Directors fees
    
    $
    101
    
    
    $
    78
    
    
    $
    23
    
    
    $
    290
    
    
    $
    249
    
    
    $
    41Appraisal and credit report
    
    
    108
    
    
    
    93
    
    
    
    15
    
    
    
    342
    
    
    
    312
    
    
    
    30Telephone
    
    
    62
    
    
    
    62
    
    
    
    
    
    
    
    190
    
    
    
    181
    
    
    
    9Postage
    
    
    103
    
    
    
    80
    
    
    
    23
    
    
    
    277
    
    
    
    214
    
    
    
    63Courier
    
    
    65
    
    
    
    66
    
    
    
    (1
    )
    
    
    223
    
    
    
    174
    
    
    
    49Dues and subscriptions
    
    
    38
    
    
    
    44
    
    
    
    (6
    )
    
    
    133
    
    
    
    127
    
    
    
    6Service charges
    
    
    35
    
    
    
    32
    
    
    
    3
    
    
    
    101
    
    
    
    97
    
    
    
    4Printing and forms
    
    
    145
    
    
    
    24
    
    
    
    121
    
    
    
    285
    
    
    
    109
    
    
    
    176Other
    
    
    440
    
    
    
    345
    
    
    
    95
    
    
    
    1,126
    
    
    
    1,073
    
    
    
    53Total other noninterest expense
    
    $
    1,097
    
    
    $
    824
    
    
    $
    273
    
    
    $
    2,967
    
    
    $
    2,536
    
    
    $
    431
  Income Tax Expense:
  Rockville Financial, Inc.
    
    27




---



##### 



Comparison of Financial Condition at September 30, 2006 and December 31, 2005
 Summary:
   Investment Securities:
 Lending Activities:
 Rockville Financial, Inc.
    
    28




---



##### 



Non-performing Assets:
 September 30,
    
    
    December 31,2006
    
    
    2005(Dollars in thousands)Nonaccrual loans:Residential(1)
    
    $
    847
    
    
    $
    821Commercial
    
    
    320
    
    
    
    667Commercial business loans
    
    
    197
    
    
    
    172Installment, collateral and other loans
    
    
    2
    
    
    
    6Total nonaccrual loans(2)
    
    
    1,366
    
    
    
    1,666Accruing loan past due 90 days or more(3)
    
    
    
    
    
    
    4,897Troubled debt restructurings
    
    
    580
    
    
    
    614Total non-performing loans
    
    
    1,946
    
    
    
    7,177Real estate owned
    
    
    
    
    
    
    Total non-performing assets
    
    $
    1,946
    
    
    $
    7,177Total non-performing loans to total loans
    
    
    0.19
    %
    
    
    0.83
    %Total non-performing loans to total assets
    
    
    0.16
    %
    
    
    0.68
    %Allowance for loan losses as a percent of total loans
    
    
    0.94
    %
    
    
    1.00
    %Allowance for loan losses as a percent of non-performing loans
    
    
    497.74
    %
    
    
    120.87
    %
 
 (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
nonaccrual loans totaled $59,000 and $62,000 for the nine months ended September 30,
2006 and 2005, respectively.(3)
    
    Balance represents a loan that was fully guaranteed by the United States
Agriculture Department and was repaid in full in January 2006. Allowance for Loan Losses:
 General Valuation Allowance
 Adversely Graded Loans
 Specific Allowance
 Rockville Financial, Inc.
    
    29




---



##### 



Deposits:
 Liquidity and Capital Resources:
  Rockville Financial, Inc.
    
    30




---



##### 



Item 3. Quantitative and Qualitative Disclosures about Market Risk
 General:
 Rockville Financial, Inc.
    
    31




---



##### 



Quantitative Analysis
 Income Simulation:
 PercentageIncrease (Decrease) inEstimated NetInterest IncomeOver 12 Months200 basis point increase in rates
    
    
    (1.9
    )200 basis point decrease in rates
    
    
    (2.7
    )
  Rockville Financial, Inc.
    
    32




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##### 



Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures:
 Changes in Internal Controls:
 
 Part II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  Rockville Financial, Inc.
    
    33




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##### 



Item 4. Submission of Matters to a Vote of Security Holders
 (a)
    
    The Company held its annual meeting of shareholders on August 22, 2006 (Annual
Meeting).(b)
    
    David A. Engelson was re-elected as a director with a four-year term at the
Annual Meeting. The other continuing directors are: Michael A. Bars, C. Perry Chilberg,
Raymond H. Lefurge, Jr., Stuart E. Magdefrau, Thomas S. Mason, William J. McGurk, Peter
F. Olson and Betty R. Sullivan. In accordance with the Companys bylaws, Betty R.
Sullivan became the Chairman of the Board.(c)
    
    There were 19,435,000 shares of Common Stock eligible to be voted at the Annual
Meeting and 16,329,332 shares were represented at the meeting by the holders thereof,
which constituted a quorum. The items voted upon at the Annual Meeting were as follows:
 1.
    
    Election of a director for a four-year term (Proposal 1):
 Director:
    
    For:
    
    Withheld:David A. Engelson
    
    
    16,248,403
    
    
    
    80,929
 2.
    
    Approval of the Rockville Financial, Inc. 2006 Stock Incentive
Award Plan (Proposal 2):
 For:
    
    
    Against:
    
    
    Abstain:
    
    
    Non-Vote:13,594,728
    
    
    365,249
    
    
    77,432
    
    
    2,291,923
 3.
    
    Ratification of Appointment of Deloitte & Touche LLP. As
independent auditors of the Company for fiscal year ending December 31, 2006 (Proposal 3):
 For:
    
    
    Against:
    
    
    Abstain:
    
    
    Non-Vote:16,298,094
    
    
    11,540
    
    
    19,698
    
    
    0
 
 Item 6. Exhibits
 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., as amended, initially filed on December 17, 2004
(File No. 333-121421))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,
Inc. on May 13, 2005)3.3
    
    Form of Common Stock Certificate of Rockville Financial, Inc.
(incorporated herein by reference to Exhibit 4 to the Registration Statement on
the Form S-1 filed for Rockville Financial, Inc., as amended, initially filed on
December 17, 2004 (File No. 333-121421))10.1
    
    Employment Agreement by and among Rockville Financial, Inc.,
Rockville Bank and William J. McGurk, effective May 20, 2005 (incorporated herein
by reference to Exhibit 10.4 to the Post Effective Amendment No. 1 to the
Registration Statement on Form S-1 of Rockville Financial, Inc. filed on April 22,
2005)10.1.1
    
    Employment Agreement by and among Rockville Financial, Inc., Rockville Bank and
Joseph F. Jeamel, Jr., effective May 20, 2005 (incorporated herein by reference to
Exhibit 10.4.1 to the Post Effective Amendment No. 1 to the Registration Statement
on Form S-1 filed for Rockville Financial, Inc. filed on April 22, 2005)10.1.2
    
    Employment Agreement by and among Rockville Financial, Inc., Rockville Bank and
Gregory A. White effective May 20, 2005 (incorporated herein by reference to
Exhibit 10.4.2 to the Post Effective Amendment No. 1 to the Registration Statement
filed on Form S-1 filed for Rockville Financial, Inc. filed on April 22, 2005)
 Rockville Financial, Inc.
    
    34




---



##### 



10.1.3
    
    Employment Agreement by and among Rockville Financial, Inc., Rockville Bank and
Kristen A. Johnson, effective May 20, 2005 (incorporated herein by reference to
Exhibit 10.4.2 to the Post Effective Amendment No. 1 to the Registration Statement
filed on Form S-1 filed for Rockville Financial, Inc. filed on April 22, 2005)10.1.4
    
    Employment Agreement by and among Rockville Financial, Inc., Rockville Bank and
Charles J. DeSimone, Jr., effective May 20, 2005 (incorporated herein by reference
to Exhibit 10.4.2 to the Post Effective Amendment No. 1 to the Registration
Statement filed on Form S-1 filed for Rockville Financial, Inc. filed on April 22,
2005)10.1.5
    
    Employment Agreement by and among Rockville Financial, Inc., Rockville Bank and
Richard J. Trachimowicz, effective May 20, 2005 (incorporated herein by reference
to Exhibit 10.4.2 to the Post Effective Amendment No. 1 to the Registration
Statement filed on Form S-1 filed for Rockville Financial, Inc. filed on April 22,
2005)10.1.6
    
    Employment Agreement by and among Rockville Financial, Inc., Rockville Bank and
Ratna Ray, effective May 20, 2005 (incorporated herein by reference to Exhibit
10.4.2 to the Post Effective Amendment No. 1 to the Registration Statement filed
on Form S-1 filed for Rockville Financial, Inc. filed on April 22, 2005)10.1.7
    
    Employment Agreement by and among Rockville Financial, Inc., Rockville Bank and
Laurie A. Rosner, effective May 20, 2005 (incorporated herein by reference to
Exhibit 10.4.2 to the Post Effective Amendment No. 1 to the Registration Statement
filed on Form S-1 filed for Rockville Financial, Inc. filed on April 22, 2005)10.1.8
    
    Employment Agreement by and among Rockville Financial, Inc., Rockville Bank and
Darlene S. White, effective June 7, 2006 (incorporated herein by reference to
Exhibit 10.1 to the Current Report on Form 8-K filed for Rockville Financial, Inc.
filed on June 13, 2006)10.1.9
    
    Employment Agreement by and among Rockville Financial, Inc., Rockville Bank and
Christopher E. Buchholz, effective June 7, 2006 (incorporated herein by reference
to Exhibit 10.2 to the Current Report on Form 8-K filed for Rockville Financial,
Inc. filed on June 13, 2006)10.2.1
    
    Supplemental Savings and Retirement Plan of Rockville Bank (incorporated herein
by reference to Exhibit 10.13 to the Pre-Effective Amendment No. 1 to the
Registration Statement filed on Form S-1 filed for Rockville Financial, Inc. filed
on March 29, 2005)10.2.2
    
    First amendment to Exhibit 10.2.1, the Supplemental Savings and Retirement Plan
of Rockville Bank (incorporated herein by reference to Exhibit 10.2.2 to the
Companys Annual Report on Form 10-K for the year ended December 31, 2005 filed on
September 30, 2006).10.2.3
    
    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).10.2.4
    
    Rockville Bank Supplemental Executive Retirement Agreement for Joseph F. Jeamel,
Jr. (incorporated herein by reference to Exhibit 10.9 to the Registration
Statement filed on Form S-1 filed for Rockville Financial, Inc. filed on December
17, 2004)10.2.5
    
    Executive Split Dollar Life Insurance Agreement for Joseph F. Jeamel, Jr.
(incorporated herein by reference to Exhibit 10.11 to the Registration Statement
filed on Form S-1 filed for Rockville Financial, Inc. filed on December 17, 2004)10.2.6
    
    Rockville Bank Supplemental Executive Retirement Plan (incorporated herein by
reference to Exhibit 10.12 to the Registration Statement filed on Form S-1 filed
for Rockville Financial, Inc. filed on December 17, 2004)10.2.7
    
    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)
 Rockville Financial, Inc.
    
    35




---



##### 



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.
 
 SIGNATURES
  Rockville Financial, Inc.By:
    
    /s/ Mr. William J. McGurkMr. William J. McGurkPresident and Chief Executive OfficerDate:
    
    November 14, 2006By:
    
    /s/ Mr. Gregory A. WhiteMr. Gregory A. WhiteSVP, Chief Financial Officer and TreasurerDate:
    
    November 14, 2006
 Rockville Financial, Inc.
    
    36