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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 March 31, 2007.
 Commission File Number: 000-51239
 ROCKVILLE FINANCIAL, INC.
 (Exact name of registrant as specified in its charter)
 Connecticut
(State or other jurisdiction of incorporation or organization)
    
    30-0288470
(I.R.S. Employer Identification No.)25 Park Street, Rockville, Connecticut
(Address of principal executive officers)
    
    06066
(Zip Code)
 (860) 291-3600
(Registrants telephone number, including area code)
 þ o
  o þ o
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Table of Contents
  
 PagePart I  FINANCIAL INFORMATIONItem 1. Interim Financial StatementsCondensed Consolidated Statements of Condition as of March 31, 2007 (unaudited)
and December 31, 2006
    
    
    3Condensed Consolidated Statements of Income for the three months ended
March 31, 2007 and 2006 (unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows for the three months ended
March 31, 2007 and 2006 (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
    
    
    29Item 4. Controls and Procedures
    
    
    30Part II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    31Item 1A. Risk Factors
    
    
    31Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    31Item 3. Defaults Upon Senior Securities
    
    
    31Item 4. Submission of Matters to a Vote of Security Holders
    
    
    31Item 5. Other Information
    
    
    31Item 6. Exhibits
    
    
    32SIGNATURES
    
    
    34EX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.0: CERTIFICATION
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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)
 March 31,
    
    
    December 31,2007
    
    
    2006(Unaudited)ASSETSCASH AND CASH EQUIVALENTSCash and due from banks
    
    $
    20,261
    
    
    $
    21,000Short-term investments
    
    
    1,961
    
    
    
    1,381Total cash and cash equivalents
    
    
    22,222
    
    
    
    22,381AVAILABLE FOR SALE SECURITIES-At fair value
    
    
    127,052
    
    
    
    132,467LOANS RECEIVABLE (Net of allowance for loan
losses of $10,120 in 2007 and $9,827 in 2006)
    
    
    1,045,909
    
    
    
    1,033,355FEDERAL HOME LOAN BANK STOCK
    
    
    9,836
    
    
    
    9,836ACCRUED INTEREST RECEIVABLE
    
    
    4,682
    
    
    
    4,473DEFERRED TAX ASSET-Net
    
    
    5,143
    
    
    
    5,238BANK PREMISES AND EQUIPMENT-Net
    
    
    12,925
    
    
    
    12,624GOODWILL
    
    
    1,070
    
    
    
    1,070CASH SURRENDER VALUE OF BANK OWNED LIFE INSURANCE
    
    
    9,043
    
    
    
    8,954OTHER ASSETS
    
    
    2,092
    
    
    
    2,438TOTAL
    
    $
    1,239,974
    
    
    $
    1,232,836LIABILITIES AND CAPITALLIABILITIESDEPOSITSNon-interest bearing
    
    $
    95,901
    
    
    $
    93,068Interest bearing
    
    
    821,712
    
    
    
    791,443Total deposits
    
    
    917,613
    
    
    
    884,511MORTGAGORS AND INVESTORS ESCROW ACCOUNTS
    
    
    2,964
    
    
    
    5,320ADVANCES FROM THE FEDERAL HOME LOAN BANK
    
    
    153,868
    
    
    
    178,110ACCRUED EXPENSES AND OTHER LIABILITIES
    
    
    9,843
    
    
    
    9,831Total liabilities
    
    
    1,084,288
    
    
    
    1,077,772COMMITMENTS AND CONTINGENCIES (Note 8)STOCKHOLDERS EQUITYPreferred stock (no par value; 1,000,000 shares authorized;
no shares issued and outstanding)
    
    
    
    
    
    
    Common stock (no par value; 29,000,000 shares authorized;
19,574,640 shares issued and outstanding (includes 163,960 shares of unvested
restricted stock) at March 31, 2007 and December 31, 2006)
    
    
    85,249
    
    
    
    85,249Additional paid-in capital
    
    
    2,118
    
    
    
    1,854Unallocated stock held by ESOP
    
    
    (6,259
    )
    
    
    (6,434
    )Treasury stock, at cost (93,156 shares at March 31, 2007)
    
    
    (1,380
    )
    
    
    Retained earnings
    
    
    77,192
    
    
    
    76,063Accumulated other comprehensive income, net of tax
    
    
    (1,234
    )
    
    
    (1,668
    )Total stockholders equity
    
    
    155,686
    
    
    
    155,064TOTAL
    
    $
    1,239,974
    
    
    $
    1,232,836
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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 EndedMarch 31,2007
    
    
    2006INTEREST AND DIVIDEND INCOME:Loans
    
    $
    15,877
    
    
    $
    12,857Securities-interest
    
    
    1,344
    
    
    
    1,237Interest bearing deposits
    
    
    25
    
    
    
    23Securities-dividends
    
    
    280
    
    
    
    210Total interest and dividend income
    
    
    17,526
    
    
    
    14,327INTEREST EXPENSE:Deposits
    
    
    6,390
    
    
    
    3,799Borrowed funds
    
    
    2,086
    
    
    
    1,631Total interest expense
    
    
    8,476
    
    
    
    5,430Net interest income
    
    
    9,050
    
    
    
    8,897PROVISION FOR LOAN LOSSES
    
    
    226
    
    
    
    450Net interest income after provision
for loan losses
    
    
    8,824
    
    
    
    8,447NONINTEREST INCOME:Service charges and fees
    
    
    1,137
    
    
    
    887Net gain from sale of securities
    
    
    165
    
    
    
    114Total noninterest income
    
    
    1,302
    
    
    
    1,001NONINTEREST EXPENSE:Salaries and employee benefits
    
    
    3,944
    
    
    
    3,426Service bureau fees
    
    
    789
    
    
    
    705Occupancy and equipment
    
    
    847
    
    
    
    906Professional fees
    
    
    449
    
    
    
    250Marketing and promotions
    
    
    232
    
    
    
    218Insurance and FDIC assessments
    
    
    48
    
    
    
    54Other
    
    
    956
    
    
    
    971Total noninterest expense
    
    
    7,265
    
    
    
    6,530INCOME BEFORE INCOME TAXES
    
    
    2,861
    
    
    
    2,918PROVISION FOR INCOME TAXES
    
    
    949
    
    
    
    969NET INCOME
    
    $
    1,912
    
    
    $
    1,949
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Rockville Financial, Inc.
 Condensed Consolidated Statements of Income  Continued
 (Unaudited)
 For the Three Months EndedMarch 31,2007
    
    
    2006Net income (loss) per share(see Note 2):Basic
    
    $
    0.10
    
    
    $
    0.10Diluted
    
    
    0.10
    
    
    
    0.10Weighted average shares outstanding:Basic
    
    
    18,912,841
    
    
    
    18,824,042Diluted
    
    
    18,912,841
    
    
    
    18,824,042
  Rockville Financial, Inc.
    
    
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Rockville Financial, Inc. and Subsidiaries
 
 Condensed Consolidated Statements of Cash Flows
 (Unaudited)
 (In Thousands)
 For the Three MonthsEnded March 31,2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    1,912
    
    
    $
    1,949Adjustments to reconcile net income to net cash
provided by operating activities:Amortization and accretion of premiums and discounts
on investments, net
    
    
    19
    
    
    
    51Stock compensation expense
    
    
    438
    
    
    
    249Provision for loan losses
    
    
    226
    
    
    
    450Net gain from sale of securities
    
    
    (165
    )
    
    
    (114
    )Depreciation and amortization
    
    
    336
    
    
    
    330Deferred income taxes
    
    
    (129
    )
    
    
    (164
    )Increase in cash surrender value of bank owned life insurance
    
    
    (89
    )
    
    
    (81
    )Change in assets and liabilities:Deferred loan fees and premiums
    
    
    58
    
    
    
    16Accrued interest receivable
    
    
    (209
    )
    
    
    (10
    )Other assets
    
    
    120
    
    
    
    708Accrued expenses and other liabilities
    
    
    12
    
    
    
    (600
    )Net cash provided by operating activities
    
    
    2,529
    
    
    
    2,784CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from sales of available for sale securities
    
    
    2,128
    
    
    
    976Proceeds from calls and maturities of available for sale securities
    
    
    8,100
    
    
    
    2,750Principal payments on available for sale mortgage-backed securities
    
    
    2,564
    
    
    
    3,193Purchase of available for sale securities
    
    
    (6,798
    )
    
    
    (6,940
    )Purchase of Federal Home Loan Bank stock
    
    
    
    
    
    
    (360
    )Proceeds from sales of loans
    
    
    
    
    
    
    948Net increase in loans
    
    
    (12,386
    )
    
    
    (65,007
    )Purchases of bank premises and equipment
    
    
    (637
    )
    
    
    (868
    )Net cash used in investing activities
    
    
    (7,029
    )
    
    
    (65,308
    )CASH FLOWS FROM FINANCING ACTIVITIES:Common stock purchased for ESOP
    
    
    
    
    
    
    (817
    )Common stock repurchased
    
    
    (1,380
    )
    
    
    Net increase in non-interest bearing deposits
    
    
    2,833
    
    
    
    2,329Net increase in interest bearing deposits
    
    
    30,269
    
    
    
    26,327Decrease in mortgagors and investors escrow accounts
    
    
    (2,356
    )
    
    
    (1,972
    )Proceeds from Federal Home Loan Bank advances
    
    
    7,800
    
    
    
    175,084Repayments of Federal Home Loan Bank advances
    
    
    (32,042
    )
    
    
    (142,722
    )Cash dividends paid on common stock
    
    
    (783
    )
    
    
    Net cash provided by financing activities
    
    
    4,341
    
    
    
    58,229NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (159
    )
    
    
    (4,295
    )CASH AND CASH EQUIVALENTS  Beginning of year
    
    
    22,381
    
    
    
    23,611CASH AND CASH EQUIVALENTS  End of period
    
    $
    22,222
    
    
    $
    19,316SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATIONCash paid during the period for:Interest
    
    $
    8,442
    
    
    $
    5,372Income taxes
    
    
    500
    
    
    
    437
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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 SBR Investment Corp. 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. The results of operations for the three months ended March 31, 2007 are not
necessarily indicative of the results that may be expected for the year ending December 31,
2007. These condensed consolidated financial statements should be read in conjunction with
the Companys 2006 consolidated financial statements and notes thereto included in the
Companys Annual Report on Form 10-K for the year ended December 31, 2006.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 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 ShareThe following table set forth the calculation of basic and diluted earnings per share
for the three months ended March 31, 2007 and 2006 (Dollars in thousands except share and
per share information):
 For the Three MonthsEnded March 31,2007
    
    
    2006Net income
    
    $
    1,912
    
    
    $
    1,949Weighted-average basic shares outstanding
    
    
    18,912,841
    
    
    
    18,824,042Diluted potential restricted stock common
shares
    
    
    
    
    
    
    Weighted-average diluted shares
    
    
    18,912,841
    
    
    
    18,824,042Earnings per share:Basic
    
    $
    0.10
    
    
    $
    0.10Diluted
    
    $
    0.10
    
    
    $
    0.10
 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 not included in the weighted-average
number of common shares outstanding for basic earnings per share calculations. The Companys
common stock equivalents relate solely to stock options issued and outstanding and unvested
restricted stock awards. The Company had no dilutive options outstanding as of March 31,
2007. Options to purchase 179,200 shares of common stock were issued on December 13, 2006
and were not included in the computation of diluted earnings per share at March 31, 2007
because the options exercise price was greater than the average market price of the common
shares during the period.
 Rockville Financial, Inc.
    
    
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3.
    
    Recent Accounting PronouncementsIn September 2006, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 157 (SFAS 157), Fair Value Measurements,
which provides enhanced guidance for using fair value to measure assets and liabilities. The
standard applies whenever other standards require or permit assets or liabilities to be
measured at fair value. The Standard does not expand the use of fair value in any new
circumstances and is effective for financial statements for the Company beginning on January
1, 2008. Early adoption is permitted. The Company does not expect the adoption of SFAS 157
to have a material impact on the consolidated financial statements or results of operations
of the Company.In September 2006, the FASB issued SFAS No. 158 (SFAS 158), Employers Accounting for
Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No.
87, 88, 106, and 132(R). The Company adopted the provisions of SFAS 158 requiring the
recognition of the funded status of defined benefit plans as of December 31, 2006. The
statement requires the Company to measure plan assets and benefit obligations as of the date
of the Companys fiscal year-end statement of financial position is effective for the
Company on January 1, 2008. The Company offers a defined benefit pension plan whose
measurement date of the pension plan assets and benefit obligations is presently October 1
and will be changed in accordance with the provisions of SFAS 158 to the Companys year-end
of December 31, effective December 31, 2008. Refer to Note 4 Benefit Plans for additional
disclosures.In February 2007, the FASB issued SFAS No. 159 (SFAS 159), The Fair Value Option for
Financial Assets and Financial Liabilities, effective for the Company beginning on January
1, 2008. This statement provides entities with an option to report selected financial assets
and liabilities at fair value, with the objective to reduce the complexity in accounting for
financial instruments and the volatility in earnings caused by measuring related assets and
liabilities differently. The Company is currently assessing the impact of this guidance on
its consolidated financial statements.4.
    
    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 of vesting service. The Companys funding policy
is to contribute annually the maximum amount that can be deducted for Federal income tax
purposes, while meeting the minimum funding standards established by the ERISA.The measurement date of the pension plan assets and benefit obligations is presently October
1 and will be changed in accordance with the provisions of SFAS 158 to the Companys
year-end of December 31 effective December 31, 2008. The Company uses January 1 as the
measurement date for its post-retirement benefit plan.The Company entered into a supplemental retirement agreement with two executive officers of
the Bank. Additionally, effective December 1, 2004, the Bank adopted the Supplemental
Executive Retirement Plan (the SERP) covering two designated executive officers of the
Company. The SERP provides the two designated officers with a retirement benefit equal to
70% of their respective average annual earnings, as defined.The Company also has supplemental retirement plans (the Supplemental Plans) that provide
benefits for certain key executive officers. The Supplemental Plans provide restorative
payments to certain executives who are prevented from receiving the full benefits
contemplated by the tax-qualified Retirement Plan, 401(k) Plan and Employee Stock Ownership
Plan. Benefits under the Supplemental Plans are based on a predetermined formula. The
benefits under the Supplemental Plans are reduced by other employee benefits. The liability
arising from the Supplemental Plans is being accrued over the participants remaining
periods of service so that at the expected retirement dates, the present value of the annual
payments will have been expensed.The Company also provides an unfunded post-retirement medical, health and life insurance
benefit plan for retirees and employees hired prior to March 1, 1993.
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The amounts related to the Pension Plan, Supplemental Plans and the SERPs are reflected in
the tables that follow as Pension Plans:
 Components of Net Periodic Benefit Cost
 Pension Plans
    
    
    Postretirement BenefitsThree Months Ended March 31,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands)Service cost
    
    $
    238
    
    
    $
    199
    
    
    $
    5
    
    
    $
    3Interest cost
    
    
    248
    
    
    
    222
    
    
    
    30
    
    
    
    24Expected return on
plan assets
    
    
    (263
    )
    
    
    (244
    )
    
    
    
    
    
    
    Amortization of net
actuarial losses
    
    
    121
    
    
    
    124
    
    
    
    22
    
    
    
    15Amortization of prior
service cost
    
    
    78
    
    
    
    155
    
    
    
    5
    
    
    
    5Net periodic benefit cost
    
    $
    422
    
    
    $
    456
    
    
    $
    62
    
    
    $
    47
 No contributions have been made to the pension plan for the three months ended March 31,
2007. During the three months ended March 31, 2007 the Company contributed $23,000 to the
postretirement plan. The Company anticipates contributing an additional $94,000 during the
year ended December 31, 2007 to fund the postretirement benefit plans. The Company plans to
contribute $675,000 to the pension plan in 2007.401(k)Plan:The Company has a tax-qualified 401(k) plan for the benefit of its eligible
employees. Beginning January 1, 2005, the 401(k) Plan was amended to pay all employees, even
those who do not contribute to the 401(k) Plan, an automatic 3% of pay safe harbor
contribution that is fully vested instead of the matching contribution previously provided
to participants of the 401(k) Plan. The 401(k) expense for the three months ended March 31,
2007 and 2006 was $49,000 and $128,000, respectively.On December 31, 2006, the Corporation adopted the recognition and disclosure provisions of
SFAS 158. SFAS 158 required the Corporation to recognize the underfunded status of its
defined benefit post-retirement benefit plans as a liability in its December 31, 2006
consolidated balance sheet, with a corresponding adjustment to accumulated other
comprehensive income, net of tax. The funded status is measured as the difference between
plan assets at fair value and the benefit obligation (the projected benefit obligation for
pension plans or the accumulated benefit obligation for other post-retirement benefit
plans). The amount recorded as accumulated other comprehensive income represents the net
unrecognized actuarial loss and prior service cost remaining from the initial adoption of
SFAS No. 87, Employers Accounting for Pensions. The net unrecognized actuarial loss and
prior service cost is being amortized and recognized as net periodic pension cost and
post-retirement benefits. Further, actuarial gains and losses that arise in subsequent
periods and are not recognized as net periodic pension cost in the same period will be
recognized as a component of other comprehensive income. Those amounts will be subsequently
recognized as a component of net periodic pension cost on the same basis as the amounts
recognized in accumulated other comprehensive income at adoption of SFAS 158. SFAS 158 also
requires an employer to measure the funded status of a plan as of the date of its year-end
statement of financial position. The measurement date of the pension plan assets and benefit
obligations is presently October 1. The Company uses January 1 as the measurement date for
its post-retirement benefit plan. The plans will be changed in accordance with the
provisions of SFAS 158 to the Companys year-end of December 31 effective December 31, 2008.5.
    
    Stock Based CompensationOn January 1, 2006, the Company adopted SFAS 123R (revised 2004), Share-Based Payment.
The adoption of these new rules did not impact the Companys consolidated financial
statements since the Company had not issued any stock options or restricted stock before the
adoption date. Under SFAS 123R, the fair value of stock option and restricted stock awards,
measured at grant date, is amortized to compensation expense on a straight-line basis over
the vesting period. The Company accelerates the recognition of compensation costs for
stock-based awards granted to retirement-eligible employees and employees who become
retirement-eligible prior to full vesting of the award because the Companys incentive
compensation plans allow for
 Rockville Financial, Inc.
    
    
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vesting at the time an employee retires. Stock-based compensation granted to
non-retirement-eligible individuals is expensed over the normal vesting period.The Board of Directors and stockholders of the Company approved the Rockville Financial,
Inc. 2006 Stock Incentive Award Plan (the Plan) in 2006. The Plan allows the Company to
use stock options, stock awards, stock appreciation rights and performance awards to
attract, retain and reward performance of qualified employees and others who contribute to
the success of the Company.During the fourth quarter of 2006, the Human Resources Committee awarded 197,440 shares of
restricted stock (net of 7,508 shares which were used by the executives for income tax
withholding as described below) with a fair value of $3.5 million, as measured on the grant
date and options to purchase 179,200 shares of the Companys stock with cliff vesting on
December 13, 2008 and an exercise price of $17.77 per share. The restricted stock and
options were issued to directors and officers of the Company. The fair value of the options
awarded on grant date, net of estimated forfeitures, was $739,000 using the Black-Scholes
pricing model that uses assumptions noted in the following table. The right to exercise the
stock options expires on December 13, 2016. Option and share awards provide for accelerated
vesting if there is a change in control, as defined in the Plan. There was no restricted
stock or options awarded in the first quarter of 2007. As of March 31, 2007, there were
144,882 restricted stock shares and 695,975 stock options available for future grants under
the Plan.Total employee and director share-based compensation expense recognized for stock options
and restricted stock was $168,000 for the three months ended March 31, 2007 of which
director share-based compensation expense recognized (in the consolidated statement of
income as other noninterest expense) was $86,000 and officer share-based compensation
expense recognized (in the consolidated statement of income as salaries and benefit
noninterest expense) was $82,000.In November of 2006, the Board of Directors approved a stock repurchase program to purchase
up to 349,830 shares. During the year ended December 31, 2006, the Company purchased 57,800
shares on the open market at a cost of $962,000 and re-issued them along with 139,640 shares
of previously un-issued shares to settle the restricted stock awards granted during 2006.
During the first quarter of 2007 the Company purchased 93,156 shares on the open market at a
cost of $1.4 million and holds these shares as treasury stock at March 31, 2007. As of March
31, 2007, the Company may repurchase up to 198,874 additional shares under the approved
stock repurchase program. The Plan allows the Company to use either acquired or un-issued
shares to award future grants or exercised options.Stock Options:For share-based compensation recognized for the three months ended March 31, 2007, the
Company used the Black-Scholes option pricing model for estimating the fair value of stock
options granted. No options were granted for the three months ended March 31, 2007. The
weighted average estimated fair values of stock options granted in 2006 and the assumptions
that were used in calculating such fair values were based on estimates at the date of grant
as follows:
 Weighted average fair value of options granted
    
    $
    4.34Stock options granted
    
    
    179,200Assumptions:Risk free interest rate
    
    
    4.55
    %Expected volatility
    
    
    15.83
    %Expected dividend yield
    
    
    .90
    %Expected life of options granted
    
    6 years
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The expected volatility was determined using both the Companys historical trading
volatility as well as the historical volatility of an index published by SNL Financial for
mutual holding companys common stock over the expected average life of the options. The
index was used as the Companys stock has been publicly traded only since May 20, 2005.The Company estimates option forfeitures using historical data on employee terminations.The expected life of stock options granted is derived using the simplified method and
represents the period of time that stock options granted are expected to be outstanding.The risk-free interest rate for periods within the contractual life of the stock option is
based on the average five and seven years U.S. Treasury Note yield curve in effect at the
date of grant.The expected dividend yield reflects an estimate of the dividends the Company expects to
declare over the expected life of the options granted.Stock options provide grantees the option to purchase shares of common stock at a specified
exercise price and, expire ten years from the date of grant. The exercise price of $17.77
was equal to the fair value of the shares on the date the options were granted. The Company
recognizes compensation expense, measured as the fair value of the stock option on the date
of grant, on a straight-line basis over the vesting period with accelerated recognition of
compensation costs for stock options granted to retirement-eligible employees and employees
who become retirement-eligible prior to full vesting of the award because the Companys
incentive compensation plans allow for vesting at the time an employee retires. Stock
options granted to non-retirement-eligible individuals are expensed over the normal vesting
period.The following table presents the activity related to stock options under the Plan for the
three months ended March 31, 2007:
 Weighted Average
    
    
    AggregateWeighted
    
    
    Remaining
    
    
    IntrinsicStock
    
    
    Average
    
    
    Contractual Term
    
    
    ValueOptions
    
    
    Exercise Price
    
    
    (in years)
    
    
    (in thousands)Stock options outstanding at January 1, 2007
    
    
    179,200
    
    
    $
    17.77
    
    
    
    10.0
    
    
    
    778Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited or expired
    
    
    (600
    )
    
    
    17.77
    
    
    
    
    
    
    
    Stock options outstanding at March 31, 2007
    
    
    178,600
    
    
    
    17.77
    
    
    
    9.7
    
    
    $
    775
 As of March 31, 2007, the unrecognized cost related to the stock options awarded of
$388,000 will be recognized over a weighted-average period of 1.7 years.Restricted Stock:Restricted stock provides grantees with rights to shares of common stock upon completion of
a service period. During the restriction period, all shares are considered outstanding and
dividends are paid on the restricted stock. The Company recognizes compensation expense,
measured as the closing market price of the Companys common stock on the date of grant, on
a straight-line basis over the vesting period for service period vesting with accelerated
recognition of compensation costs for restricted stock granted to retirement-eligible
employees and employees who become retirement-eligible prior to full vesting of the award
because the Companys incentive compensation plans allow for vesting at the time an employee
retires. Restricted stock granted to non-retirement-eligible individuals is expensed over
the normal vesting period. Restricted stock is forfeited if an employee terminates prior to
vesting.As of March 31, 2007, the unrecognized cost relating to non-vested restricted stock awards
to non-retirement age executives and directors granted under the Plan was $1.4 million which
will be recognized over a weighted average period of 3.5 years.
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The following table presents the activity for Restricted Stock for the three months ended
March 31, 2007:
 Weighted AverageGrant-Number of Shares
    
    
    Date Fair ValueUnvested as of January 1, 2007
    
    
    163,960
    
    
    $
    17.51Granted
    
    
    
    
    
    
    Vested
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Unvested as of March 31, 2007
    
    
    163,960
    
    
    $
    17.51
 Seventeen percent, or 33,480 shares of the restricted stock issued in 2006 vested
during the year ended December 31, 2006 with a grant date fair value of $588,000. During the
year ended December 31, 2006, compensation expense on 54,520 additional shares or $939,000
was recorded as the executives were retirement eligible and the shares vest upon retirement.
Twenty-five percent, or 40,988, of the remaining unvested restricted stock shares will vest
annually in 2007, 2008 2009 and 40,996 shares will vest in 2010. No changes were made to the
vesting in the first quarter of 2007 and as of March 31, 2007, all unvested restricted stock
shares are expected to vest.Employee Stock Ownership Plan:As part of the reorganization and stock offering completed
in May 2005, the Company established an Employee Stock Ownership Plan (ESOP) for eligible
employees of the Bank, and authorized the Company to lend the funds to the ESOP to purchase
699,659 or 3.6% of the shares issued in the initial public offering. Upon completion of the
reorganization, the ESOP borrowed $4.4 million from the Company to purchase 437,287 shares
of common stock. Additional shares of 59,300 and 203,072 were subsequently purchased by the
ESOP in the open market at a total cost of $817,000 and $2.7 million in 2006 and 2005,
respectively, with additional funds borrowed from the Company. The Bank intends to make
annual contributions to the ESOP that will be adequate to fund the payment of regular debt
service requirements attributable to the indebtedness of the ESOP.The interest rate for the ESOP loan is the prime rate plus one percent, or 9.25% as of March
31, 2007. As the loan is repaid to the Company, shares will be released from collateral and
will be allocated to the accounts of the participants. As of March 31, 2007, the outstanding
principal and interest due was $6.6 million, and principal payments of $1.4 million have
been made on the loan since inception.ESOP expense for the three months ended March 31, 2007 and 2006 was $271,000 and $249,000,
respectively. At March 31, 2007, there were 157,422 allocated, no unallocated and 542,237
unreleased ESOP shares; and the unreleased shares had an aggregate fair value of $8.2
million.6.
    
    Income TaxesIn July 2006, the FASB issued Interpretation No. 48 (FIN 48), Accounting for
Uncertainty in Income Taxes  An Interpretation of FASB Statement No. 109.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 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. The interpretation of FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods, disclosure, and
transition. FIN 48 includes a recognition threshold of more-likelythan-not, and a
measurement attribute for all tax positions taken or expected to be taken on a tax return,
in order for those tax positions to be recognized in the financial statements.Effective January 1, 2007, the Company has adopted the provisions of FIN 48 and there was no
material effect on the consolidated condensed financial statements. As a result, there was
no cumulative effect related to adopting FIN 48. As of January 1, 2007 and March 31, 2007,
there were no unrecognized tax benefits related to federal and state income tax matters. The
Company is currently open to audit under the statute of limitations by the Internal Revenue
Service and state taxing authorities for the years ended December 31, 2003 through 2006.As of January 1, 2007 and March 31, 2007, the Company has not accrued any interest related
to uncertain tax positions.
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7.
    
    Accumulated Other Comprehensive (Loss) IncomeComponents of accumulated other comprehensive (loss) income, net of taxes, consist of
the following:
 UnrealizedIncome(Loss) on
    
    
    AccumulatedMinimum
    
    
    Available-
    
    
    OtherPension
    
    
    For-Sale
    
    
    ComprehensiveLiability
    
    
    Securities
    
    
    (Loss) Income(In Thousands)January 1, 2007
    
    $
    (4,406
    )
    
    $
    2,738
    
    
    $
    (1,668
    )Change
    
    
    149
    
    
    
    285
    
    
    
    434March 31, 2007
    
    $
    (4,257
    )
    
    $
    3,023
    
    
    $
    (1,234
    )
  Three Months EndedMarch 31,2007
    
    
    2006(In thousands)Net income as reported
    
    $
    1,912
    
    
    $
    1,949Unrealized gain (loss) on securities available
for sale
    
    
    432
    
    
    
    (114
    )Tax provision (benefit)
    
    
    (147
    )
    
    
    39Net unrealized gain (loss) on securities
available for sale
    
    
    285
    
    
    
    (75
    )Amortization of unamortized benefit plans
    
    
    226
    
    
    
    Tax benefit
    
    
    (77
    )
    
    
    Net amortization of unamortized benefit plans
    
    
    149
    
    
    
    Other comprehensive income (expense), net of tax
    
    
    434
    
    
    
    (75
    )Total comprehensive income
    
    $
    2,346
    
    
    $
    1,874
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8.
    
    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 March
31, 2007 and December 31, 2006:
 March 31,
    
    
    December 31,2007
    
    
    2006(In thousands)Commitments to extend credit:Future loan commitments
    
    $
    29,881
    
    
    $
    23,740Undisbursed construction loans
    
    
    95,952
    
    
    
    93,563Undisbursed home equity lines of credit
    
    
    104,518
    
    
    
    101,675Undisbursed commercial lines of credit
    
    
    57,361
    
    
    
    57,368Standby letters of credit
    
    
    17,524
    
    
    
    17,614Unused checking overdraft lines of credit
    
    
    100
    
    
    
    98$
    305,336
    
    
    $
    294,058
 9.
    
    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.10.
    
    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
March 31, 2007, the Company and the Bank exceeded all regulatory capital requirements and
are considered well capitalized under regulatory guidelines.
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The following is a summary of the Companys and the Banks regulatory capital amounts and
ratios as of March 31, 2007 and December 31, 2006 compared to the Federal Deposit Insurance
Corporations requirements for classification as a well-capitalized institution and for
minimum capital adequacy:
 To Be WellFor Capital
    
    Capitalized UnderAdequacy
    
    Prompt CorrectiveActual
    
    
    
    
    
    Purposes
    
    Action ProvisionsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio(Dollars in Thousands)Rockville Bank:March 31, 2007Total capital to risk weighted assets
    
    $
    130,200
    
    
    
    14.0
    %
    
    $
    74,400
    
    
    
    8.0
    %
    
    $
    93,000
    
    
    
    10.0
    %Tier I capital to risk weighted assets
    
    
    119,560
    
    
    
    12.8
    
    
    
    37,363
    
    
    
    4.0
    
    
    
    56,044
    
    
    
    6.0Tier I capital to total average assets
    
    
    119,560
    
    
    
    9.7
    
    
    
    49,303
    
    
    
    4.0
    
    
    
    61,629
    
    
    
    5.0Rockville Bank:December 31, 2006Total capital to risk weighted assets
    
    $
    127,949
    
    
    
    13.9
    %
    
    $
    73,640
    
    
    
    8.0
    %
    
    $
    92,050
    
    
    
    10.0
    %Tier I capital to risk weighted assets
    
    
    117,606
    
    
    
    12.8
    
    
    
    36,752
    
    
    
    4.0
    
    
    
    55,128
    
    
    
    6.0Tier I capital to total average assets
    
    
    117,606
    
    
    
    9.6
    
    
    
    49,003
    
    
    
    4.0
    
    
    
    61,253
    
    
    
    5.0Rockville Financial, Inc.:March 31, 2007Total capital to risk weighted assets
    
    $
    166,479
    
    
    
    17.8
    %
    
    $
    74,822
    
    
    
    8.0
    %
    
    $
    93,528
    
    
    
    10.0
    %Tier I capital to risk weighted assets
    
    
    155,839
    
    
    
    16.7
    
    
    
    37,327
    
    
    
    4.0
    
    
    
    55,990
    
    
    
    6.0Tier I capital to total average assets
    
    
    155,839
    
    
    
    12.7
    
    
    
    49,083
    
    
    
    4.0
    
    
    
    61,354
    
    
    
    5.0Rockville Financial, Inc.:December 31, 2006Total capital to risk weighted assets
    
    $
    165,992
    
    
    
    18.0
    %
    
    $
    73,774
    
    
    
    8.0
    %
    
    $
    92,218
    
    
    
    10.0
    %Tier I capital to risk weighted assets
    
    
    155,649
    
    
    
    16.9
    
    
    
    36,840
    
    
    
    4.0
    
    
    
    55,260
    
    
    
    6.0Tier I capital to total average assets
    
    
    155,649
    
    
    
    12.8
    
    
    
    48,640
    
    
    
    4.0
    
    
    
    60,800
    
    
    
    5.0
 Connecticut law restricts the amount of dividends that the Bank can pay based on
earnings for the current year and the preceding two years.In accordance with Connecticut banking regulations, the Bank has established two liquidation
accounts (the Liquidation Accounts) for the benefit of its deposit account holders at,
respectively, the time of (1) the Banks conversion in 1997 from a mutual savings bank to a
stock savings bank, and (2) the reorganization in 2005 of the Banks single-tier mutual
holding company to its current structure with the Company as a mid-tier holding company with
public stockholders. Each of the Liquidation Accounts was established in an amount,
respectively, equal to the Banks equity capital as of the latest practicable date prior to
each of the above events, and each Liquidation Account will be maintained for ten (10) years
from its establishment. Each of the Liquidation Accounts is divided into sub-accounts
representing the respective amounts of the holders deposit accounts at the time of the
establishment of the amount of each Liquidation Account. Each of the Liquidation Accounts
is reduced in amount annually, as of the end of the Banks fiscal year, to reflect any
reduction in the balance in any deposit sub-account at that time from the balance at the
time of the previous measurement. Sub-account balances, and accordingly the amount of each
Liquidation Account, will never increase irrespective of any increase in the balances in the
respective deposit accounts. The function of the Liquidation Accounts is to establish
priorities for the distribution of the Banks assets among its depositors and the Companys
stockholders in the unlikely event of the Banks complete liquidation, and their function
shall not operate to restrict the use or application of the equity capital of the Company.
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Forward Looking StatementsThis Form 10-Q contains forward-looking statements that are within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements are based upon the current
beliefs and expectations of our management and are subject to significant risks and
uncertainties. These risks and uncertainties could cause our results to differ materially
from those set forth in such forward-looking statements.Forward-looking statements can be identified by the fact that they do not relate strictly to
historical or current facts. Words such as believes, anticipates, expects, intends,
plans, estimates, targeted and similar expressions, and future or conditional verbs,
such as will, would, should, could or may, are intended to identify
forward-looking statements but are not the only means to identify these statements.Forward-looking statements involve risks and uncertainties. Actual conditions, events or
results may differ materially from those contemplated by a forward-looking statement.Factors that could cause this difference  many of which are beyond our control  include
the following, without limitation:
 
    
    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.
    
    Strong competition within our market area may limit our growth and profitability.
    
    We may not manage the risks involved in the foregoing as well as anticipated.
    
    We recently opened new branches which may not become profitable as soon as
anticipated, if at all.
 Any forward-looking statements made by or on behalf of us in this Form 10-Q speak only as of
the date of this Form 10-Q. We do not undertake to update forward-looking statements to
reflect the impact of circumstances or events that arise after the date the forward-looking
statement was made. The reader should, however, consult any further disclosures of a
forward-looking nature we may make in future filings.
 Rockville Financial, Inc.
    
    
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OverviewRockville Financial, Inc. (the Company) is a state-chartered mid-tier stock holding
company formed on December 17, 2004. The Reorganization and Minority Stock Issuance Plan
(the Plan) adopted by the Companys and Rockville Banks Boards of Directors was completed
on May 20, 2005. Pursuant to the Plan, the Company became a mid-tier holding company.
Rockville Financial MHC, Inc. holds fifty-five percent of the Companys common stock, and
the Company holds all the common stock of Rockville Bank (the Bank). The Bank provides a
full range of banking services to consumer and commercial customers through its main office
in Rockville and eighteen branches located in Hartford and Tolland counties in Connecticut.
The Banks deposits are insured under the Deposit Insurance Fund, which is administered by
the Federal Deposit Insurance Corporation.The Company strives to remain a leader in meeting the financial service needs of the local
community and to provide quality service to the individuals and businesses in the market
areas that it has served since 1858. Rockville Bank is a community-oriented provider of
traditional banking products and services to business organizations and individuals,
offering products such as residential and commercial real estate loans, consumer loans and a
variety of deposit products. Our business philosophy is to remain a community-oriented
franchise and to continue to focus on providing superior customer service to meet the
financial needs of the communities in which we operate. Current strategies include expanding
our banking network by pursuing new branch locations and branch acquisition opportunities in
our market area, continuing our residential mortgage lending activities which comprise a
majority of our loan portfolio and expanding our commercial real estate and commercial
business lending activities.Critical Accounting PoliciesThe accounting policies followed by the Company and its subsidiaries conform with accounting
principles generally accepted in the United States of America and with general practices
within the banking industry.Critical accounting policies are defined as those that are reflective of significant
judgments and uncertainties, and could potentially result in materially different results
under different assumptions and conditions. We believe that our most critical accounting
policies, which involve the most complex subjective decisions or assessments, relate to
allowance for loan losses, other than temporary impairment of investment securities, income
taxes, pension and other post-retirement benefits and stock compensation.Allowance for Loan Losses:The allowance for loan losses is the amount estimated by
management as necessary to cover probable credit losses inherent in the loan portfolio at
the balance sheet date. The allowance is established through the provision for loan losses
which is charged against income. Management believes the policy is critical because
determination of the amount of the allowance involves significant judgments and assumptions.Management performs a quarterly evaluation of the adequacy of the allowance for loan losses
and presents the evaluation to both the Board Lending Committee and the Board of Directors.
In addition, the credit area of the Bank is responsible for the accuracy of loan risk
ratings and prepares an Asset Quality Report on a quarterly basis and provides summary
reports to the Board Lending Committee on a monthly basis. A variety of factors are
considered in establishing this estimate including, but not limited to, historical loss and
charge off data, current economic conditions, historical and current delinquency statistics,
geographic and industry concentrations, the adequacy of the underlying collateral, the
financial strength of our borrowers, results of internal and external loan reviews and other
relevant factors. This evaluation is inherently subjective as it requires material estimates
by management that may be susceptible to significant change.The analysis has two broad components: specific and general allocations. Specific
allocations are made for loans for which collection of contractual principal and interest is
uncertain. In such cases, the size of the specific allocation is measured by determining an
expected collection or, for collateral-dependent loans, the fair value of the collateral
adjusted for market conditions and selling expenses. The general allocation is determined by
segregating the remaining loans by type of loan, risk weighting (if applicable) and payment
history. Historical loss experience, delinquency trends, general economic conditions and
geographic and industry concentrations are also considered. This analysis establishes
factors that are applied to the loan groups to determine the amount of the general allowance
for loan losses. If the allowance for loan losses is too low, the Company may incur higher
provisions for loan losses in the future resulting in lower net income. If an estimate of
the allowance for loan losses is too high, we may experience lower provisions for loan
losses resulting in higher net income.
 Rockville Financial, Inc.
    
    
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Other than Temporary Impairment of Securities:Debt and equity securities are classified as
available for sale and recorded at fair value, with unrealized gains or losses excluded
from earnings and recorded as other comprehensive income. On a quarterly basis, securities
with unrealized depreciation for twelve or more consecutive months and other securities with
unrealized losses are reviewed as deemed appropriate to assess whether the decline in fair
value is temporary or other than temporary. It is assessed whether the decline in value is
from company-specific events, industry developments, general economic conditions or other
reasons. After the reasons for the decline are identified, further judgments are required as
to whether those conditions are likely to reverse and, if so, whether that reversal is
likely to result in a recovery of the fair value of the investment in the near term. If it
is judged not to be near term, a charge is taken which results in a new cost basis. Declines
in the fair value of available for sale securities below their cost that are deemed to be
other than temporary are reflected in earnings and unrealized gains and losses are recorded
as a component of accumulated other comprehensive income, net of tax in the Condensed
Consolidated Statements of Condition. Management can designate securities as held to
maturity. Held to maturity securities are debt securities that management has the
positive intent and ability to hold to maturity. Currently, management has no securities
classified as held to maturity on the balance sheet.Management believes the policy for evaluating securities for other than temporary impairment
is critical because it involves significant judgments by management and could have a
material impact on our net income. As of March 31, 2007, there was an aggregate $829,000 of
unrealized losses related to $65.3 million of securities in an unrealized loss position for
12 or more consecutive months which management determined, based on current market trends,
the nature of the investments, industry analysis, and other evaluations, were not other than
temporarily impaired. The aggregate unrealized losses as of March 31, 2007 for securities in
an unrealized loss position for 12 or more consecutive months consisted of $739,000 and
$90,000 in unrealized losses for debt securities and equity securities, related to $63.0
million and $2.3 million of debt and equity securities, respectively. The $739,000 of
aggregate unrealized loss for debt securities in an unrealized loss position for 12 or more
consecutive months as of March 31, 2007 consisted primarily of U.S. Government agency and
mortgage-backed securities. The unrealized losses on debt securities primarily resulted from
rising market rates which have since declined during the past quarter and reduced the
aggregate unrealized loss for debt securities in an unrealized loss position for 12 or more
consecutive months from $732,000 as of December 31, 2006 to $739,000 as of March 31, 2007.
If managements judgment regarding impairment of these securities changes in the future, it
will reduce our net income accordingly.Income Taxes:We recognize income taxes under the asset and liability method. Under this
method, deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. Deferred tax assets are reduced by a loan loss
allowance when, in the opinion of management, it is more likely than not that all or some
portion of the deferred tax assets will not be realized. The Company has not provided for
Connecticut state income taxes since December 31, 1998 because it has created and maintained
a passive investment company (PIC), as permitted by Connecticut law. The Company
believes it is in compliance with the state PIC requirements and that no state taxes are due
from December 31, 1999 through March 31, 2007; however, the Company has not been audited by
the Department of Revenue Services for such periods. If the state were to determine that the
PIC was not in compliance with statutory requirements, a material amount of taxes could be
due. As of March 31, 2007, management believes it is more likely than not that the deferred
tax assets will be realized through future reversals of existing taxable temporary
differences. As of March 31, 2007, our net deferred tax asset was $5.1 million and there was
no valuation allowance.On January 1, 2007, the Corporation changed its accounting policy related to accounting for
tax contingencies in connection with the adoption of FIN 48, an interpretation of FASB
Statement 109. See Note 6  Income Taxes for additional information.Pension and Other Post-Retirement Benefits:We have a noncontributory defined benefit
pension plan that provides benefits for substantially all employees hired before January 1,
2005 who meet certain requirements as to age and length of service. The benefits are based
on years of service and average compensation, as defined. Our funding policy is to
contribute annually the maximum amount that could be
 Rockville Financial, Inc.
    
    
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##### Table of Contents



deducted for federal income tax purposes, while meeting the minimum funding standards
established by the Employee Retirement Security Act of 1974 (ERISA).In addition to providing pension benefits, we provide certain health care and life insurance
benefits for retired employees. Participants or eligible employees hired before March 1993
become eligible for the benefits if they retire after reaching age 62 with five or more
years of service. A fixed percent of annual costs are paid depending on length of service at
retirement. We accrue for the estimated costs of these other post-retirement benefits
through charges to expense during the years that employees render service; however, we do
not fund this plan.Management believes the policy for determining pension and other post-retirement benefit
expenses is critical because judgments are required with respect to the appropriate discount
rate, rate of return on assets, salary increases and other items. Management reviews and
updates the assumptions annually. If our estimate of pension and post-retirement expense is
too low we may experience higher expenses in the future reducing our net income. If our
estimate is too high, we may experience lower expenses in the future increasing our net
income.While management believes the assumptions used to estimate expenses related to pension and
other post-retirement benefits are reasonable and appropriate, actual experience may
significantly differ. The pension expense is calculated based upon a number of actuarial
assumptions, including an expected long-term rate of return on our Pension Plan assets. In
developing our expected long-term rate of return assumption, we evaluated input from our
actuary and investment consultant, including their review of asset class return expectations
as well as long-term inflation assumptions, and their review of historical returns based on
target asset allocations. The Company adopted the provisions of SFAS 158 requiring the
recognition of the funded status of defined benefit plans as of December 31, 2006. The
statement requires the Company to measure plan assets and benefit obligations as of the date
of the Companys fiscal year-end statement of financial position is effective for the
Company on January 1, 2008. The Company offers a defined benefit pension plan whose
measurement date of the pension plan assets and benefit obligations is presently October 1
and will be changed in accordance with the provisions of SFAS 158 to the Companys year-end
of December 31, effective December 31, 2008.Stock Compensation:The Company accounts for stock options and restricted stock awards in
accordance with SFAS No. 123 (SFAS 123R), Share-Based Payments (revised 2004). This
statement requires companies to measure the cost of employee services received in exchange
for an award of equity instruments based on the grant date fair value of the award. These
costs are recognized over the period during which an employee is required to provide
services in exchange for the award, the requisite service period (usually the vesting
period). SFAS 123R requires companies to measure the cost of employee services received in
exchange for stock options, and the Company is required to expense the grant date fair value
of the Companys stock options and restricted stock with a corresponding increase in equity
or a liability, depending on whether the instruments granted satisfy the equity or liability
classification criteria. We use the Black-Scholes option valuation model to value employee
stock awards. Determining the appropriate fair-value model and calculating the estimated
fair value of stock-based awards at the grant date requires considerable judgment, including
estimating stock price volatility, expected option life, expected dividend rate, risk-free
interest rate and expected forfeiture rate. We develop our estimates based on historical
data and market information which can change significantly over time.Comparison of Operating Results for the Three Months Ended March 31, 2007 and 2006The Companys results of operations depend primarily on net interest income, which is the
difference between the interest income from earning assets, such as loans and investments,
and the interest expense incurred on interest-bearing liabilities, such as deposits and
other borrowings. The Company also generates noninterest income, including service charges
on deposit accounts, mortgage servicing income, bank owned life insurance income, safe
deposit box rental fees, brokerage fees, insurance commissions and other miscellaneous fees.
The Companys noninterest expense primarily consists of employee compensation and benefits,
occupancy and equipment, service bureau fees, and other operating expenses. The Companys
results of operations are also affected by its provision for loan losses. The following
discussion provides a summary and comparison of the Companys operating results for the
three months ended March 31, 2007 and 2006.
 Rockville Financial, Inc.
    
    
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Income Statement Summary
 For the Three Months EndedMarch 31,2007
    
    
    2006
    
    
    Change
    
    
    % Change(In thousands)Net interest income
    
    $
    9,050
    
    
    $
    8,897
    
    
    $
    153
    
    
    
    1.7
    %Provision for loan losses
    
    
    226
    
    
    
    450
    
    
    
    (224
    )
    
    
    (49.8
    )Noninterest income
    
    
    1,302
    
    
    
    1,001
    
    
    
    301
    
    
    
    30.1Operating expenses
    
    
    7,265
    
    
    
    6,530
    
    
    
    735
    
    
    
    11.3Income before income taxes
    
    
    2,861
    
    
    
    2,918
    
    
    
    (57
    )
    
    
    (2.0
    )Provision for income taxes
    
    
    (949
    )
    
    
    (969
    )
    
    
    (20
    )
    
    
    (2.1
    )Net income
    
    $
    1,912
    
    
    $
    1,949
    
    
    $
    (37
    )
    
    
    (1.9
    )%
 Net income decreased by $37,000, or 1.9%, to $1.9 million for the quarter ended March 31,
2007 from $1.9 million for the same period in the prior year. The decrease in net income
primarily resulted from a $735,000, or 11.3%, increase in our operating expenses offset by
an increase in net interest income of $153,000, or 1.7%, an increase in noninterest income
of $301,000, or 30.1%, a decline in the provision for loan losses of $224,000, or 49.8%, and
a decrease in the provision for income taxes of $20,000, or 2.1%. The $153,000 increase in
our net interest income is attributable to a $10.3 million, or 5.4%, increase in average net
interest-earning assets, partially offset by a 42 basis point decline in our net interest
margin due to the cost of interest-bearing liabilities rising faster than our yield on
interest-earning assets because of the competitive deposit gathering environment present in
our marketplace during this time period. Our net interest margin was 3.06% for the three
months ended March 31, 2007 compared to 3.48% for the same period in the prior year. The
increase in the average net interest-earning assets is the result of a $159.2 million, or
15.6%, increase in earning assets and partially offset by a $148.9 million, or 18.0%,
increase in interest-bearing liabilities.The $224,000 decline in the provision for loan losses for the three months ended March 31,
2007 compared to the same period in the prior year is the result of our evaluation of the
required allowance amount based upon probable and reasonably estimable losses in our loan
portfolio.The $301,000 increase in noninterest income recorded for the three months ended March 31,
2007 when compared to the same period in the prior year is principally due to a $250,000
increase in service charges, resulting primarily from a $131,000 increase in overdraft fees
from the implementation of an overdraft protection program in June of 2006 that provides
short-term funding of overdrafts to approved deposit customers, a $40,000 increase in ATM
fees as a result of increased volume in debit card transactions and additions made to our
ATM network, and an increase in Infinex brokerage fees of $34,000, in addition to an
increase in the net gains on sales of securities of $51,000.The $735,000 increase in noninterest expense for the three months ended March 31, 2007 when
compared to the same period in the prior year was primarily attributable to an increase of
$518,000 in salary and employee benefits, an $84,000 increase in service bureau fees, a
$199,000 increase in professional fees, offset by a $59,000 decrease in occupancy and
equipment costs. The $518,000 increase in salary and employee benefits reflects an increase
of $268,000 in salary costs principally incurred in connection with annual salary increases,
the expansion of branch facilities and the commercial banking division in addition to
$82,000 in stock incentive award expenses in the first quarter of 2007 compared to no awards
in the first quarter of 2006. The $84,000 increase in service bureau fees is mainly due to a
$46,000 increase in core processing services and a $30,000 increase in wide area network
telecommunications servicing costs. The higher service costs are primarily attributable to
the costs associated with increased processing services due to the overall growth
experienced in loans, deposits and debit card processing. The $59,000 decrease in occupancy
expense is largely due in rental income of our Tolland branch facility offset by increased
costs of expanding our branch and ATM network. The $199,000 increase in professional fees
was primarily due to an increase of $16,000 paid for additional legal services associated
with operating a public company, a $66,000 increase in audit fees largely due to the
increased costs of complying with Section 404 of the Sarbanes Oxley Act and an increase of
$117,000 in various consulting services. The $15,000 decrease in other non-interest
expenses primarily reflects a $92,000 increase directors fees and expenses including
 Rockville Financial, Inc.
    
    
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##### Table of Contents



$86,000 in stock incentive plan expenses for the directors compared to none in the first
quarter of 2006 offset by a decrease in appraisals and credit reports of $79,000.Net Interest Income AnalysisAverage Balance Sheets, Interest and Yields/Costs:The following tables set forth average
balance sheets, average yields and costs, and certain other information for the periods
indicated. No tax-equivalent yield adjustments were made, as the effect thereof was not
material. All average balances are daily average balances. Non-accrual loans are included in
the computation of average balances, but have been reflected in the table as loans carrying
a zero yield. The yields set forth below include the effect of deferred fees, discounts and
premiums that are amortized or accreted to interest income or expense.
 Three Months Ended March 31,2007
    
    
    2006InterestAverage
    
    
    Interest and
    
    
    Yield/
    
    
    Average
    
    
    andBalance
    
    
    Dividends
    
    
    Cost
    
    
    Balance
    
    
    Dividends
    
    
    Yield/ Cost(Dollars in thousands)Interest-earning assets:Loans receivable, net
    
    $
    1,037,795
    
    
    $
    15,877
    
    
    
    6.12
    %
    
    $
    881,150
    
    
    $
    12,857
    
    
    
    5.84
    %Available for sale securities
    
    
    131,704
    
    
    
    1,457
    
    
    
    4.43
    
    
    
    128,806
    
    
    
    1,336
    
    
    
    4.14Federal Home Loan Bank stock
    
    
    9,836
    
    
    
    167
    
    
    
    6.79
    
    
    
    8,568
    
    
    
    111
    
    
    
    5.18Other earning assets
    
    
    2,138
    
    
    
    25
    
    
    
    4.68
    
    
    
    3,748
    
    
    
    23
    
    
    
    2.46Total interest-earning assets
    
    
    1,181,473
    
    
    
    17,526
    
    
    
    5.93
    
    
    
    1,022,272
    
    
    
    14,327
    
    
    
    5.61Noninterest-earning assets
    
    
    50,952
    
    
    
    
    
    
    
    
    
    
    
    50,754Total assets
    
    $
    1,232,425
    
    
    
    
    
    
    
    
    
    
    $
    1,073,026Interest-bearing liabilities:NOW and money market accounts
    
    $
    178,128
    
    
    
    699
    
    
    
    1.57
    
    
    $
    189,087
    
    
    
    703
    
    
    
    1.49Savings accounts
    
    
    128,402
    
    
    
    194
    
    
    
    0.60
    
    
    
    148,543
    
    
    
    223
    
    
    
    0.60Time deposits
    
    
    490,841
    
    
    
    5,488
    
    
    
    4.47
    
    
    
    337,923
    
    
    
    2,864
    
    
    
    3.39Total interest-bearing deposits
    
    
    797,371
    
    
    
    6,381
    
    
    
    3.20
    
    
    
    675,553
    
    
    
    3,790
    
    
    
    2.24Mortgagors and investors escrow accounts2,187
    
    
    
    9
    
    
    
    1.65
    
    
    
    2,032
    
    
    
    9
    
    
    
    1.77Advances from the Federal Home Loan Bank178,213
    
    
    
    2,086
    
    
    
    4.68
    
    
    
    151,332
    
    
    
    1,631
    
    
    
    4.31Total interest-bearing liabilities
    
    
    977,771
    
    
    
    8,476
    
    
    
    3.47
    %
    
    
    828,917
    
    
    
    5,430
    
    
    
    2.62
    %Noninterest-bearing liabilities
    
    
    98,515
    
    
    
    
    
    
    
    
    
    
    
    92,158Total liabilities
    
    
    1,076,286
    
    
    
    
    
    
    
    
    
    
    
    921,075Capital
    
    
    156,139
    
    
    
    
    
    
    
    
    
    
    
    151,951Total liabilities and capital
    
    $
    1,232,425
    
    
    
    
    
    
    
    
    
    
    $
    1,073,026Net interest income
    
    
    
    
    
    $
    9,050
    
    
    
    
    
    
    
    
    
    
    $
    8,897Net interest rate spread (1)
    
    
    
    
    
    
    
    
    
    
    2.46
    %
    
    
    
    
    
    
    
    
    
    
    2.99
    %Net interest-earning assets (2)
    
    $
    203,702
    
    
    
    
    
    
    
    
    
    
    $
    193,355Net interest margin (3)
    
    
    
    
    
    
    
    
    
    
    3.06
    %
    
    
    
    
    
    
    
    
    
    
    3.48
    %Average interest-earning assets to
average interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    120.83
    %
    
    
    
    
    
    
    
    
    
    
    123.33
    %
 
 (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.
    
    
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##### Table of Contents



Rate Volume AnalysisThe following table sets forth the effects of changing rates and volumes on our net interest
income for the periods indicated. The rate column shows the effects attributable to changes in
rate (changes in rate multiplied by prior volume). The volume column shows the effects
attributable to changes in volume (changes in volume multiplied by prior rate). The net column
represents the sum of the prior columns. For purposes of this table, changes attributable to
changes in both rate and volume that cannot be segregated have been allocated proportionately
based on the changes due to rate and the changes due to volume.
 Three Months EndedMarch 31, 2007Compared toMarch 31, 2006Increase (Decrease)Due ToVolume
    
    
    Rate
    
    
    Net(Dollars in thousands)Interest and dividend income:Loans receivable
    
    $
    2,379
    
    
    $
    641
    
    
    $
    3,020Securities interest, dividends &
income from other assets
    
    
    27
    
    
    
    152
    
    
    
    179Total earning assets
    
    
    2,406
    
    
    
    793
    
    
    
    3,199Interest expense:NOW and money market accounts
    
    
    (54
    )
    
    
    50
    
    
    
    (4
    )Savings accounts
    
    
    (29
    )
    
    
    
    
    
    
    (29
    )Time deposits
    
    
    1,540
    
    
    
    1,084
    
    
    
    2,624Total interest-bearing deposits
    
    
    1,457
    
    
    
    1,134
    
    
    
    2,591FHLB Advances
    
    
    307
    
    
    
    148
    
    
    
    455Total interest bearing liabilities
    
    
    1,764
    
    
    
    1,282
    
    
    
    3,046Change in net interest income
    
    $
    642
    
    
    $
    (489
    )
    
    $
    153
 Net Interest Income:Net interest income before the provision for loan loss was $9.1 million
for the three months ended March 31, 2007, compared to $8.9 million for the same period in
the prior year. The $153,000, or 1.7%, increase in our net interest income is primarily due
to a $10.3 million, or 5.4%, increase in average net interest-earning assets, partially
offset by a 42 basis point decline in our net interest margin. Average earning assets
increased by $159.2 million, or 15.6%, to $1.2 billion for the three months ended March 31,
2007 when compared to the same period in the prior year. The increase in the average net
interest-earning assets and average earning assets reflects the net impact of continued
strong loan growth funded by time deposits and FHLB advances. Our net interest margin
declined 42 basis points to 3.06% for the three months ended March 31, 2007 from 3.48% for
the same period in the prior year. Our net interest rate spread declined 53 basis points due
to an increase in our cost of funds resulting from the rising rate environment in which we
were operating and the continued strong competition for deposits in our marketplace during
this time period, which was partially offset by the increase in our earning asset yield.Interest and Dividend Income:Interest and dividend income increased by $3.2 million, or
22.3%, to $17.5 million for the three months ended March 31, 2007 from $14.3 million for the
same period in the prior year. Our yield on earning assets for the three months ended March
31, 2007 increased 32 basis points to 5.93% when compared to 5.61% for the three months
ended March 31, 2006. Interest income on loans receivable increased by $3.0 million, or
23.5%, to $15.9 million from $12.9 million. The increase in interest and dividend income was
primarily due to a $156.6 million, or a 17.8%, increase in average loans receivable and a 28
basis point increase in the average yield on the loan portfolio. The increase in the average
yield was attributable to rising interest rates partially offset by a competitive loan
environment. The effect of the rising rates on the Companys portfolio is delayed for
adjustable-rate residential mortgage loans, with interest rates which adjust annually based
on the one-year Constant Maturity Treasury Bill Index, after either a one, three, four,
five, seven, or nine-year initial fixed rate period. The prime rate used as an index to
re-price various commercial and home equity adjustable loans increased 50 basis points
during the past year to 8.25% at March 31, 2007 from 7.75% at March 31, 2006. The one-year
Constant Maturity Treasury Bill Index used to
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##### Table of Contents



re-price adjustable rate residential mortgages increased 16 basis points during the past
year to 4.93% at March 31, 2007 from 4.77% at March 31, 2006.Interest Expense:Interest expense for the three months ended March 31, 2007 increased $3.1
million, or 56.1%, to $8.5 million from $5.4 million from the same period in the prior year.
The increase resulted from a $148.9 million, or a 18.0%, increase in average
interest-bearing liabilities and an increase of 85 basis points paid on average
interest-bearing liabilities for the three months ended March 31, 2007 as compared to the
three months ended March 31, 2006. The increase in the cost of funds was due to a
competitive deposit gathering environment relating to time deposits present in our
marketplace during this time period and was partially mitigated by the use of short-term
wholesale funding and deposit account promotions used to attract lower cost core deposits.
Generally speaking, management would prefer to fund growth with deposits instead of
wholesale borrowings. There are periods when market conditions are such that wholesale
borrowings are more financially advantageous, in which case management will temporarily
increase its use of wholesale borrowings. Average balances on interest-bearing deposits rose
to $797.4 million, an increase of $121.8 million, or 18.0%, for the three months ended March
31, 2007 compared to $675.6 million for the same period in the prior year. Average balances
on advances from the Federal Home Loan Bank increased $26.9 million, or 17.8%, to $178.2
million for the three months ended March 31, 2007 from $151.3 million for the same period in
the prior year.Provision for Loan Losses:The allowance for loan losses is maintained at a level management
determined to be appropriate to absorb estimated credit losses that are both probable and
reasonably estimable at the dates of the financial statements. Management evaluates the
adequacy of the allowance for loan losses on a quarterly basis and charges any provision for
loans losses needed to current operations. The assessment considers historical loss
experience, the types of loans and the amount of loans in the loan portfolio, adverse
situations that may affect the borrowers ability to repay, estimated value of any
underlying collateral, and prevailing economic conditions. Based on our evaluation of these
factors, management recorded provisions of $226,000 for the three months ended March 31,
2007, which reflects a decrease of $224,000, when compared to the same period in the prior
year. At March 31, 2007, the allowance for loan losses totaled $10.1 million, which
represented 0.96% of total loans and 512.7% of non-performing loans when excluding a fully
guaranteed non-performing USDA loan that became non-performing in the first quarter of 2007
and 357.0% of non-performing loans when including the fully guaranteed non-performing USDA
loan, compared to an allowance for loan losses of $9.8 million, which represented 0.94% of
total loans and 658.2% of non-performing loans as of December 31, 2006.Noninterest Income:We have the following sources of noninterest income: banking service
charges on deposit accounts, bank owned life insurance, mortgage servicing income and
brokerage and insurance fees from Infinex, Inc., the Banks on-premise provider of
non-deposit investment services.Noninterest income increased by $301,000, or 30.1%, to $1.3 million for the quarter ended
March 31, 2007 from $1.0 million earned during the same period in the prior year. The
$301,000 increase is principally due to a $250,000 increase in service charges, resulting
primarily from a $131,000 increase in overdraft fees from the implementation of an overdraft
protection program in mid- June 2006 that provides short-term funding of overdrafts to
approved deposit customers, a $40,000 increase in ATM fees as a result of increased volume
in debit card transactions and additions made to our ATM network and an increase in
brokerage fees of $34,000 from Infinex, Inc. In addition, net gains on sales of securities
increased $51,000 for the quarter ended March 31, 2007 when compared to the same period in
the prior year.
 Rockville Financial, Inc.
    
    
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##### Table of Contents



Noninterest Expense:Noninterest expense increased by $735,000, or 11.3%, to $7.3 million
for the three months ended March 31, 2007 from $6.5 million for the same period in the prior
year. The following table summarizes noninterest expense for the three and nine months ended
March 31, 2007 and 2006:
 Three MonthsEnded March 31,2007
    
    
    2006
    
    
    Change(In thousands)Salaries and employee benefits
    
    $
    3,944
    
    
    $
    3,426
    
    
    $
    518Service bureau fees
    
    
    789
    
    
    
    705
    
    
    
    84Occupancy and equipment
    
    
    847
    
    
    
    906
    
    
    
    (59
    )Professional fees
    
    
    449
    
    
    
    250
    
    
    
    199Marketing and promotions
    
    
    232
    
    
    
    218
    
    
    
    14Insurance and FDIC
Assessments
    
    
    48
    
    
    
    54
    
    
    
    (6
    )Other
    
    
    956
    
    
    
    971
    
    
    
    (15
    )Total noninterest expense
    
    $
    7,265
    
    
    $
    6,530
    
    
    $
    735
 The $518,000 increase in salary and employee benefits reflects an increase of $267,000 in
salary costs principally incurred in connection with annual salary increases, the expansion
of branch facilities and the commercial banking division in addition to $82,000 in stock
incentive award expenses in the first quarter of 2007 compared to no awards in the first
quarter of 2006. The number of full-time equivalent employees increased to 186 as of March
31, 2007 from 180 as of March 31, 2006. The $84,000 increase in service bureau fees is
mainly due to a $46,000 increase in core processing services and $30,000 increase in wide
area network telecommunications servicing costs. The higher service costs are primarily
attributable to the costs associated with increased processing costs due to the overall
growth experienced in loans, deposits and debit card processing. The $59,000 decrease in
occupancy expense is largely due in rental income of our Tolland branch facility offset by
increased costs of expanding our branch and ATM network. The $199,000 increase in
professional fees was primarily due to an increase of $16,000 paid for additional legal
services associated with operating a public company, a $66,000 increase in audit fees
largely due to the increased costs of complying with Section 404 of the Sarbanes Oxley Act
and a increase of $117,000 in various consulting services.
 The following table summarizes significant components of other noninterest expense for the
three months ending March 31, 2007 and 2006:
 Three MonthsEnded March 31,2007
    
    
    2006
    
    
    Change(In thousands)Directors fees
    
    $
    176
    
    
    $
    84
    
    
    $
    92Telephone
    
    
    71
    
    
    
    31
    
    
    
    40Postage
    
    
    106
    
    
    
    86
    
    
    
    20Courier
    
    
    71
    
    
    
    83
    
    
    
    (12
    )Dues and subscriptions
    
    
    54
    
    
    
    51
    
    
    
    3Service charges
    
    
    31
    
    
    
    31
    
    
    
    Printing and forms
    
    
    44
    
    
    
    87
    
    
    
    (43
    )Other
    
    
    403
    
    
    
    518
    
    
    
    (115
    )Total other noninterest expense
    
    $
    956
    
    
    $
    971
    
    
    $
    (15
    )
 Rockville Financial, Inc.
    
    
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##### Table of Contents



Other noninterest expense decreased by $15,000, or 1.5%, to $956,000 for the three months
ended March 31, 2007 compared to $971,000 for the same period in the prior year. The $15,000
decrease in other non-interest expenses primarily reflects a $115,000 decrease in Other
expenses, (comprised of supplies, training, loan servicing, human resource expenses and
other miscellaneous expenses) including a decrease of $79,000 for appraisals and credit
reports, a decrease of $43,000 for printing and forms offset by a $92,000 increase directors
fees and expenses including $86,000 in stock incentive plan expenses for the directors
compared to none in the first quarter of 2006 offset by a decrease in appraisals and credit
reports of $79,000.Income Tax Expense:Income tax expense decreased $20,000, or 2.1%, to $949,000 for the three
months ended March 31, 2007 as compared to $969,000 tax expense for the same period in the
prior year. Income taxes are provided on an interim basis using the estimated annual
effective tax rate. The provision for income taxes is 33.2% of pretax income for the three
months ended March 31, 2007 and March 31, 2006. Our effective tax rate differs from the
statutory rate of 35% for the three months ended March 31, 2007 primarily due to the
dividend received deduction, non-taxable earnings on bank owned life insurance and the
add-back of the excess of fair value over the cost basis of ESOP expense to taxable income.Comparison of Financial Condition at March 31, 2007 and December 31, 2006Summary:The Companys total assets increased $7.1 million, or 0.6%, to $1.2 billion at
March 31, 2007, from $1.2 billion at December 31, 2006, primarily due to a $12.6 million, or
1.2%, increase in loans receivable partially offset by an $5.4 million, or 4.1%, reduction
in available for sale investments. Net loans receivable increased by $12.6 million to $1.0
billion at March 31, 2007 as compared to $1.0 billion at December 31, 2006 principally due
to increases in commercial real estate, one-to-four family residential and construction
mortgages. Available for sale investment securities declined to $127.1 million as of March
31, 2007 compared to $132.5 million at December 31, 2006. The Company purchased $6.8 million
in available for sale investment securities during the three months ended March 31, 2007 to
replace maturities, calls and investment sales and maintain the investment portfolio to
assist in providing liquidity when needed.Deposits increased $33.1 million, or 3.7%, from December 31, 2006, to $917.6 million at
March 31, 2007. The growth was principally attributable to a $30.3 million increase in
interest-bearing deposits and a $2.8 million increase in non-interest bearing deposits due
to several deposit account promotions. Federal Home Loan Bank advances decreased $24.2
million, or 13.6%, to $153.9 million at March 31, 2006 from $178.1 at December 31, 2006. The
added liquidity from deposit growth was primarily used to pay down the Federal Home Loan
Bank advances and to fund loan growth.Total capital increased $622,000, or 0.4%, to $155.7 million at March 31, 2007 compared to
$155.1 million at December 31, 2006 primarily due to earnings, ESOP compensation expense
offset by the purchase of treasury stock, ESOP purchases and cash dividends paid.Investment Securities:At March 31, 2007, the Companys investment portfolio, consisting
solely of available for sale securities, was $127.1 million, or 10.2% of total assets. The
portfolio was comprised of $2.0 million in U.S. Government and Agency securities, $53.7
million in U.S. government sponsored enterprises, $4.8 million in corporate bonds, $1.0
million in municipal bonds, $47.9 million in mortgage-backed securities, $17.4 million in
marketable equity securities and $241,000 in non-marketable equity securities. The net
unrealized loss on available for sale debt securities, net of taxes has increased $286,000
to $3.0 million, net of taxes, at March 31, 2007 from $2.7 million at December 31, 2006. The
increase in the net unrealized gains on investment securities available for sale reflects
the appreciation in the marketable equity security portfolio during the period and the
positive impact that declining long-term investment market rates had on the debt securities
portfolio during the most recent quarter.Lending Activities:Net loans receivable increased $12.6 million, or 1.2%, to $1,045.9
million at March 31, 2007 compared to $1,033.3 million at December 31, 2006 primarily due to
increases in commercial real estate, one-to-four family residential and construction
mortgages. Residential real estate loans increased $203,000, or 0.03%, to $640.3 million.
Commercial real estate loans increased $2.7 million, or 1.2%, to $235.2 million.
Construction loans increased $5.6 million, or 8.7%, to $69.5 million. The increase in loans
reflects continued demand for loans, increased branch capacity and additions made to our
commercial lending staff. Commercial business loans increased $3.0 million, or 3.1%, to
$100.3 million. As of March 31, 2007 and December 31, 2006, commercial business loans
consisted of $33.8 million and $34.1 million of loans fully guaranteed by the United States
Department of Agriculture and $66.5 million and $63.1 million in loans partially guaranteed
by the Small Business Administration, revolving business lines of credit and term loans,
respectively.
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Non-performing Assets:The table below sets forth the amounts and categories of our
non-performing assets at the dates indicated. Once a loan is 90 days delinquent or either
the borrower or the loan collateral experiences an event that makes collectibility suspect,
the loan is placed on nonaccrual status. Our policies require nine months of continuous
payments in order for the loan to be removed from nonaccrual status.
 March 31,
    
    
    December 31,,2007
    
    
    2006(Dollars in thousands)Nonaccrual loans:Residential(1)
    
    $
    486
    
    
    $
    422Commercial
    
    
    806
    
    
    
    311Commercial business loans
    
    
    114
    
    
    
    114Installment, collateral and other loans
    
    
    24
    
    
    
    8Total nonaccrual loans(2)
    
    
    1,430
    
    
    
    855Accruing loan past due 90 days or more
    
    
    861
    (3)
    
    
    Other accruing loans
    
    
    
    
    
    
    78Troubled debt restructurings
    
    
    544
    
    
    
    560Total non-performing loans
    
    
    2,835
    
    
    
    1,493Real estate owned
    
    
    
    
    
    
    Total non-performing assets
    
    $
    2,835
    
    
    $
    1,493Total non-performing loans to total loans
    
    
    0.27
    % (4)
    
    
    0.14
    %Total non-performing loans to total assets
    
    
    0.23
    % (5)
    
    
    0.12
    %Allowance for loan losses as a percent of total loans
    
    
    0.96
    %
    
    
    0.94
    %Allowance for loan losses as a percent of non-performing loans
    
    
    356.97
    % (6)
    
    
    658.20
    %
 
 (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 $77,000 and $52,000 at March 31, 2007 and December 31, 2006,
respectively.(3)
    
    Balance represents a loan that is fully guaranteed by the United States
Agriculture Department that became non-performing in the first quarter of 2007.(4)
    
    The ratio is 0.19% when excluding the $861,000 fully guaranteed United States
Department of Agriculture loan that was past due 90 days and still accruing as of March
31, 2007.(5)
    
    The ratio is 0.16% when excluding the $861,000 fully guaranteed United States
Department of Agriculture loan that was past due 90 days and still accruing as of March
31, 2007.(6)
    
    The ratio is 512.66% when excluding the $861,000 fully guaranteed United States
Department of Agriculture loan that was past due 90 days and still accruing as of March
31, 2007. Allowance for Loan Losses:The Company utilizes several methodologies in determining an
appropriate level of allowance for loan losses. At the time of loan origination, a risk
rating based on a nine point grading system is assigned to each loan based on the loan
officers assessment of risk. More complex loans, such as commercial business loans and
commercial real estate, require that our internal independent credit area further evaluate
the risk rating of the individual loan, with the credit area having final determination of
the appropriate risk rating. These more complex loans and relationships receive an in-depth
analysis and periodic review to assess the appropriate risk rating on a post-closing basis
with changes made to the risk rating as the borrowers and economic conditions warrant.
Criticized assets are further evaluated to determine if risk and possible loss exposure
require special allocations to the allowance for loan losses.The methodology for determining the adequacy of the allowance for loan losses contains two
key components: 1) a specific allowance for loans that have been identified as problem loans
or for loans that have an elevated risk profile, including certain impaired or
non-performing assets; and 2) a general loan loss allowance for each loan type within the
portfolio determined by segregating the remaining loans by type of loan, risk weighting (if
applicable) and payment history.Specific Allowance. Adversely graded loans are reviewed individually in order to
ensure that the percentage allocation adequately reflects the identified risk level. If the
risk level exceeds the standard percentage allocation, then a specific allowance is
established for that loan. A loan is considered adversely graded when
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it has a higher than normal risk profile with the possibility of not receiving timely loan
payments and is graded by the degree of risk. Depending on the loan grade, the type of loan
and the degree of collateral protection, a percentage allocation is made in determining the
adequacy of the allowance for loan losses.General Allowance. The Company establishes a general loan loss allowance for loans
that reflects managements best estimate of probable incurred loan losses as of the balance
sheet dates. The allowance amount is determined by loan type, historical loss experience for
that particular loan type, credit quality trends, delinquency levels, quality of collateral
and changes in general economic and business conditions. The Companys methodology for
assessing the adequacy of the allowance for loan losses utilized both objective and
subjective factors. In recognition of the subjectivity and the inherent lending risks that
are difficult to objectively define in a timely manner, the Company makes a further
supplemental provision to the allowance representing the general allowance. The unallocated
portion of the general allowance is $1.6 million as of both March 31, 2007 and December 31,
2006.The credit quality of the Companys loan portfolio is reviewed by a third party risk
assessment firm and by the Companys internal credit management function. Review findings
are reported periodically to senior management, the Board Lending Committee and the Board of
Directors. This process is supplemented with several risk assessment tools including
monitoring of delinquency levels, analysis of historical loss experience by loan type,
identification of portfolio concentrations by borrower and industry, and a review of
economic conditions that might impact loan quality. Based on these findings the allowance
for each loan type is evaluated. The allowance for loan losses is calculated on a quarterly
basis and reported to the Board of Directors.Any loan that is 90 or more days delinquent is placed on nonaccrual and classified as a
non-performing asset. Any unpaid interest is reversed when a loan is placed in nonaccrual. A
loan is classified as impaired when it is probable that the Company will be unable to
collect all amounts due in accordance with the terms of the loan agreement. In accordance
with SFAS No. 114 (SFAS 114), Accounting by Creditors for Impairment of a Loan, as amended
by SFAS No. 118 (SFAS 118), Accounting by Creditors for Impairment for Loan-Income
Recognition and Disclosures, an allowance is maintained for impaired loans to reflect the
difference, if any, between the principal balance of the loan and the present value of
projected cash flows, observable fair value or collateral value. SFAS 114 defines an
impaired loan as a loan for which it is probable that the lender will not collect all
amounts due under the contractual terms of the loan.In addition, the Companys bank regulatory agencies periodically review the adequacy of the
allowance for loan losses as part of their review and examination processes. The regulatory
agencies may require that the Company recognize additions to the allowance based on their
judgments of information available to them at the time of their review or examination.Each quarter, management, in conjunction with the Board Lending Committee, evaluates the
total balance of the allowance for loan losses based on several factors some of which are
not loan specific, but are reflective of the inherent losses in the loan portfolio. This
process includes, but is not limited to, a periodic review of loan collectibility in light
of historical experience, the nature and volume of loan activity, conditions that may affect
the ability of the borrower to repay, underlying value of collateral, if applicable, and
economic conditions in our immediate market area. First, loans are grouped by type within
each risk weighting classification status. All loans 90 days or more delinquent are
evaluated individually, based primarily on the value of the collateral securing the loan and
the ability of the borrower to repay as agreed. Specific loss allowances are established as
required by this analysis. All loans for which a specific loss allowance has not been
assigned are segregated by loan type, delinquency status or loan risk rating grade and a
loss allowance is established by using loss experience data and managements judgment
concerning other matters it considers significant including the current economic
environment. The allowance is allocated to each category of loan based on the results of the
above analysis.This analysis process is both quantitative and subjective, as it requires management to make
estimates that are susceptible to revisions as more information becomes available. Although
we believe that we have established the allowance at levels to absorb probable and estimable
losses, future additions may be necessary if economic or other conditions in the future
differ from the current environment.The allowance for loan losses was $10.1 million and $9.8 million at March 31, 2007 and
December 31, 2006, respectively. The increase in the allowance resulted from a $226,000
provision for loan losses for the three months ended March 31, 2007 increased by $67,000 in
net recoveries. The allowance was deemed adequate based upon managements analysis and
includes an increase of $293,000 in the provision recorded
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during the three months ended March 31, 2007 when compared to the same period in the prior
year as a result of our evaluation of the required allowance amount based upon probable and
reasonably estimable losses in our loan portfolio. At March 31, 2007, the allowance for
loan losses represented 0.96% of total loans and 512.7% of non-performing loans when
excluding a fully guaranteed non-performing USDA loan and 357.0% of non-performing loans
when including the fully guaranteed non-performing USDA loan, compared to 0.94% of total
loans and 658.2% of non-performing loans as of December 31, 2006.Deposits:Deposits increased $33.1 million, or 3.7%, to $917.6 million at March 31, 2007
from $884.5 million at December 31, 2006. The growth was principally attributable to a
$23.9 million increase in time deposits due to the success of several time deposit
promotions in addition to a $9.2 million increase in core
deposits despite a relatively competitive deposit gathering environment
present in our marketplace during this time period. Regular savings increased by $1.8
million, or 1.4%, to $130.4 million at March 31, 2007 from $128.6 million at December 31,
2006. The Company has been promoting competitive rate shorter-term time deposits linked to
direct deposit in response to the competition within our marketplace to maintain existing
market share and fund the loan growth experienced. At March 31, 2006, deposits consisted of
$95.9 million in non-interest bearing demand deposits, $86.4 million in NOW accounts,
$130.4 million in savings accounts, $101.0 million in money market accounts, $489,000 in
club accounts and $503.4 million in time deposits.Liquidity and Capital Resources:We maintain liquid assets at levels we consider adequate to
meet our liquidity needs. We adjust our liquidity levels to fund loan commitments, repay our
borrowings, fund deposit outflows, pay escrow obligations on all items in the loan portfolio
and to fund operations. We also adjust liquidity as appropriate to meet asset and liability
management objectives.Our primary sources of liquidity are deposits, amortization and prepayment of loans,
maturities and sales of investment securities and other short-term investments, periodic pay
downs of mortgage-backed securities, and earnings and funds provided from operations. While
scheduled principal repayments on loans are a relatively predictable source of funds,
deposit flows and loan prepayments are greatly influenced by market interest rates, economic
conditions, and rates offered by our competition. We set the interest rates on our deposits
to maintain a desired level of total deposits. In addition, we invest excess funds in
short-term interest-earning assets, which provide liquidity to meet lending requirements.A portion of our liquidity consists of cash and cash equivalents, which are a product of our
operating, investing and financing activities. At March 31, 2007 and December 31, 2006,
respectively, $22.2 million and $22.4 million of our assets were invested in cash and cash
equivalents. Our primary sources of cash are principal repayments on loans, proceeds from
the calls and maturities of investment securities, increases in deposit accounts and
advances from the Federal Home Loan Bank of Boston.For the three months ended March 31, 2007, our loan originations
and purchases, net of collected principal and loan sales, totaled $12.4 million, reflecting net growth in our portfolio. Cash received from the calls
and maturities of investment securities totaled $8.1 million for the
three months ended March 31, 2007. We purchased $6.8
million and received proceeds from the sale of $2.1 million in available for sale investment securities during the three months ended
March 31,
2007. The Company received $2.6 million in principal payments on available for sale mortgage-backed securities during the three
months ended March 31, 2007.Deposit flows are generally affected by the level of interest rates, the interest rates and
products offered by local competitors, and other factors. The net increases in total
deposits were $33.1 million for the three months ended March 31, 2007.Liquidity management is both a daily and longer-term function of business management. If we
require funds beyond our ability to generate them internally, borrowing agreements exist
with the Federal Home Loan Bank of Boston, which provide an additional source of funds. At
March 31, 2007, we had $153.9 million in advances from the Federal Home Loan Bank of Boston
and an additional available borrowing limit of $189.4 million based on collateral
requirements of the Federal Home Loan Bank of Boston. Internal policies limit borrowings to
20% of total assets, or $248.0 million at March 31, 2007.At March 31, 2007, we had outstanding commitments to originate loans of $29.9 million and
unfunded commitments under construction loans, lines of credit and stand-by letters of
credit of $275.4 million. At March 31, 2007, time deposits scheduled to mature in less than
one year totaled $410.7 million. Based on prior experience, management believes that a significant portion of such deposits will
remain with us, although there can be no assurance that this will be the case. In the event
a significant portion of our deposits are not retained by us, we will have to utilize other
funding sources, such as Federal Home Loan Bank of
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##### Table of Contents



Boston advances in order to maintain our
level of assets. Alternatively, we would reduce our level of liquid assets, such as our cash
and cash equivalents in order to meet funding needs. In addition, the cost of such deposits
may be significantly higher if market interest rates are higher or there is an increased
amount of competition for deposits in our market area at the time of renewal.
 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
 General:The majority of our assets and liabilities are monetary in nature.
Consequently, our most significant form of market risk is interest rate risk. Our assets,
consisting primarily of mortgage loans, in general have longer contractual maturities than
our liabilities, consisting primarily of deposits. As a result, a principal part of our
business strategy is to manage interest rate risk and reduce the exposure of our net
interest income to changes in market interest rates. Accordingly, our Board of Directors has
established an Asset/Liability Committee which is responsible for evaluating the interest
rate risk inherent in our assets and liabilities, for determining the level of risk that is
appropriate given our business strategy, operating environment, capital, liquidity and
performance objectives, and for managing this risk consistent with the guidelines approved
by the Board of Directors. Management monitors the level of interest rate risk on a regular
basis and the Asset/Liability Committee meets at least quarterly to review our
asset/liability policies and interest rate risk position.We actively manage our interest rate risk in order to minimize the exposure of our earnings
and capital to changes in interest rates. During the interest rate environment that has
existed in recent years, we have implemented the following strategies to manage our interest
rate risk: (i) emphasizing adjustable rate loans including, adjustable rate one-to-four
family, commercial and consumer loans, (ii) reducing and shortening the expected average
life of the investment portfolio, and (iii) whenever possible, lengthening the term
structure of our deposit base and our borrowings from the Federal Home Loan Bank of Boston
with low cost funds. These measures are designed to reduce the volatility of our future net
interest income in different interest rate environments.Quantitative AnalysisIncome Simulation:Simulation analysis is an estimate of our interest rate risk exposure at
a particular point in time. It is a dynamic method in that it incorporates our forecasted
balance sheet growth assumptions under the different interest rate scenarios tested. We
utilize the income simulation method to analyze our interest rate sensitivity position to
manage the risk associated with interest rate movements. At least quarterly, our
Asset/Liability Committee reviews the potential effect changes in interest rates could have
on the repayment or repricing of rate sensitive assets and funding requirements of rate
sensitive liabilities. Our most recent simulation uses projected repricing of assets and
liabilities at March 31, 2007 on the basis of contractual maturities, anticipated repayments
and scheduled rate adjustments. Prepayment rate assumptions can have a significant impact on
interest income simulation results. Because of the large percentage of loans and
mortgage-backed securities we hold, rising or falling interest rates may have a significant
impact on the actual prepayment speeds of our mortgage related assets that may in turn
effect our interest rate sensitivity position. When interest rates rise, prepayment speeds
slow and the average expected life of our assets would tend to lengthen more than the
expected average life of our liabilities and therefore would most likely result in a
decrease to our asset sensitive position.
 PercentageIncrease (Decrease) inEstimated NetInterest IncomeOver 12 Months200 basis point increase in rates
    
    
    (1.5
    )200 basis point decrease in rates
    
    
    (3.0
    )
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Rockville Banks Asset/Liability policy limits projected changes in net interest income to a
maximum variance of (5%) for every 100 basis point interest rate change measured over a
twelve-month and a twenty-four month period when compared to the flat rate scenario. In
addition, our return on assets (ROA) may change by a maximum of (15) basis points for
every 100 basis point interest rate change when compared to the flat rate scenario, or the
change will be limited to 20% of the flat rate scenario ROA ( for every 100 basis point
interest rate change), whichever is less. These limits are re-evaluated on a periodic basis
(not less than annually) and may be modified, as appropriate. Because of the
asset-sensitivity of our balance sheet, income is projected to decrease by a greater amount
if interest rates fall. At March 31, 2007, income at risk (i.e., the change in net interest
income) decreased 1.5% and 3.0% based on a 200 basis point increase or decrease,
respectively. At March 31, 2007, return on assets is modeled to increase by 1 and decrease
by 10 basis points based on a 200 basis point increase and a 200 basis point decrease,
respectively. While we believe the assumptions used are reasonable, there can be no
assurance that assumed prepayment rates will approximate actual future mortgage-backed
security and loan repayment activity.
 
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures:Our disclosure controls and
procedures are designed to ensure that information the Company must disclose in its reports
filed or submitted under the Securities Exchange Act of 1934, as amended (the Exchange
Act), is recorded, processed, summarized, and reported on a timely basis. Our management
has evaluated, with the participation and under the supervision of our chief executive
officer (CEO) and chief financial officer (CFO), the effectiveness of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as
of the end of the period covered by this report. Based on this evaluation, our CEO and CFO
have concluded that, as of such date, the Companys disclosure controls and procedures are
effective in ensuring that information relating to the Company, including its consolidated
subsidiaries, required to be disclosed in reports that it files under the Exchange Act is
(1) recorded, processed, summarized and reported within the time periods specified in the
SECs rules and forms, and (2) accumulated and communicated to our management, including our
CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.Changes in Internal Controls:During the quarter under report, there was no change in the
Companys internal control over financial reporting (as defined in Rule 13a-15(f) under
the Exchange Act ) that has materially affected, or is reasonably likely to materially
affect, the Companys internal control over financial reporting.
 Rockville Financial, Inc.
    
    
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Part II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
 The Company is party to various litigation matters arising in the ordinary course of
business. Although the ultimate resolution of these matters cannot be determined at this
time, management of the Company does not believe that such matters, individually or in the
aggregate, will have a material adverse effect on the future results of operations or
financial condition of the Company.
 
 Item 1A. Risk Factors
 There have been no material changes in the Risk Factors previously disclosed in Item 1A
of the Companys Annual Report on Form 10-K for the period ended December 31, 2006.
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 (c)
    
    The following table provides information about repurchases of common stock by the
Company during the quarter ended March 31, 2007:
 Issuer Purchases of Equity SecuritiesMaximumNumber ofTotal Number of
    
    Shares thatShares
    
    May Yet BeTotal
    
    
    
    
    
    Purchased as
    
    PurchasedNumber of
    
    Average
    
    Part of Publicly
    
    Under theShares
    
    Price Paid
    
    Announced Plans
    
    Plans orPeriod
    
    Purchased
    
    per Share
    
    or Programs
    
    Programs1/1/07  1/31/07
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    292,0302/1/07  2/28/07
    
    
    7,992
    
    
    
    15.10
    
    
    
    7,992
    
    
    
    284,0383/1/07  3/31/07
    
    
    85,164
    
    
    
    14.79
    
    
    
    85,164
    
    
    
    198,874Total
    
    
    93,156
    
    
    $
    14.82
    
    
    
    93,156
  
 Item 3. Defaults Upon Senior Securities
 None
 
 Item 4. Submission of Matters to a Vote of Security Holders
 None
 
 Item 5. Other Information
 None
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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
    
    Amendment dated December 22, 2006 to the Employment Agreement dated as of May 20,
2005 between Rockville Financial, Inc., Rockville Bank and William J.
McGurk (incorporated herein by reference to Exhibit 10.1.1 to
the Companys Annual Report on Form 10-K for the year ended
December 31, 2006 filed on March 16, 2007)10.2
    
    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)10.2.1
    
    Amendment dated December 22, 2006 to the Employment Agreement dated as of May 20,
2005 between Rockville Financial, Inc., Rockville Bank and Joseph F. Jeamel, Jr.
(incorporated herein by reference to Exhibit 10.2.1 to the Companys Annual Report
on Form 10-K for the year ended December 31, 2006 filed on March 16, 2007)10.3
    
    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)10.3.1
    
    Amendment dated December 22, 2006 to the Employment Agreement dated as of May 20,
2005 between Rockville Financial, Inc., Rockville Bank and Gregory A. White
(incorporated herein by reference to Exhibit 10.3.1 to the Companys Annual Report
on Form 10-K for the year ended December 31, 2006 filed on March 16, 2007)10.4
    
    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)10.4.1
    
    Amendment dated December 22, 2006 to the Employment Agreement dated as of May 20,
2005 between Rockville Financial, Inc., Rockville Bank and Charles J. DeSimone, Jr.
(incorporated herein by reference to Exhibit 10.5.1 to the Companys Annual Report
on Form 10-K for the year ended December 31, 2006 filed on March 16, 2007)10.5
    
    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)10.5.1
    
    First amendment to Exhibit 10.5, 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 March 31,
2006)10.6
    
    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)
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10.7
    
    Rockville Bank Supplemental Executive Retirement Agreement for Joseph
F. Jeamel, Jr. (incorporated herein by reference to Exhibit 10.9 to the
Registration Statement filed on Form S-1 filed for Rockville Financial, Inc. filed
on December 17, 2004)10.8
    
    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)10.9
    
    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)10.10
    
    Rockville Financial, Inc. 2006 Stock Incentive Award Plan
(incorporated herein by reference to Appendix B in the Definitive Proxy Statement
on Form 14A for Rockville Financial, Inc. filed on July 3, 2006)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.
 Rockville Financial, Inc.
    
    
    33




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SIGNATURES
 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
 Rockville Financial, Inc.By:
    
    /s/ Mr. Gregory A. WhiteMr. Gregory A. WhiteSVP, Chief Financial Officer and TreasurerDate:
    
    May 10, 2007
 Rockville Financial, Inc.
    
    
    34