UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
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For the Fiscal Year Ended December 31, 2009 |
OR
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Commission File Number: 000-51239
ROCKVILLE FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
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Connecticut
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30-0288470 |
(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.) |
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25 Park Street, Rockville, Connecticut
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06066 |
(Address of principal executive offices)
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(Zip Code) |
(860) 291-3600
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act: None
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Title of Class |
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Name of each exchange where registered |
Common Stock, no par value
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NASDAQ Global Select Stock Market |
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. o Yes. þ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15 (d) of the Act. oYes. þ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. þ Yes o No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. o
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, or
a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule
12B-2 of the Exchange Act
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12B-2 of the
Act). Yes o No þ
The aggregate market value of voting and non-voting common equity held by non-affiliates of
Rockville Financial, Inc. as of June 30, 2009 was $70.4 million based upon the closing price of
$10.95 as of June 30, 2009, the last business day of the registrants most recently completed
second quarter. Directors and officers of the Registrant are deemed to be affiliates solely for the
purposes of this calculation.
As of February 26, 2010, there were 19,554,774 shares of Registrants common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrants definitive proxy statement for its Annual Meeting of Stockholders,
expected to be filed pursuant to Regulation 14A within 120 days after the end of the 2009 fiscal
year, are incorporated by reference into Part III of this Report on Form 10-K.
Rockville Financial, Inc.
Annual Report on Form 10-K
For the Fiscal Year Ended December 31, 2009
Table of Contents
2
Part I
FORWARD-LOOKING STATEMENTS
This Form 10-K contains forward-looking statements that are within the meaning of
the Private Securities Litigation Reform Act of 1995. Such statements are based upon the
current beliefs and expectations of our management and are subject to significant risks
and uncertainties. These risks and uncertainties could cause our results to differ
materially from those set forth in such forward-looking statements.
Forward-looking statements can be identified by the fact that they do not relate strictly
to historical or current facts. Words such as believes, anticipates, expects,
intends, plans, estimates, targeted and similar expressions, and future or
conditional verbs, such as will, would, should, could or may, are intended to
identify forward-looking statements but are not the only means to identify these
statements.
Forward-looking statements involve risks and uncertainties. Actual conditions, events or
results may differ materially from those contemplated by a forward-looking statement.
Factors that could cause this difference many of which are beyond our control
include without limitation the following:
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Local, regional and national business or economic conditions may differ from
those expected. |
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The effects of and changes in trade, monetary and fiscal policies and laws,
including the U.S. Federal Reserve Boards interest rate policies, may adversely
affect our business. |
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The ability to increase market share and control expenses may be more difficult
than anticipated. |
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Changes in laws and regulatory requirements (including those concerning taxes,
banking, securities and insurance) may adversely affect us or our businesses. |
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Changes in accounting policies and practices, as may be adopted by regulatory
agencies, the Public Company Accounting Oversight Board or the Financial
Accounting Standards Board, may affect expected financial reporting. |
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Future changes in interest rates may reduce our profits which could have a
negative impact on the value of our stock. |
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We are subject to lending risk and could incur losses in our loan portfolio
despite our underwriting practices. Changes in real estate values could also
increase our lending risk. |
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Changes in demand for loan products, financial products and deposit flow could
impact our financial performance. |
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Strong competition within our market area may limit our growth and
profitability. |
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We may not manage the risks involved in the foregoing as well as anticipated. |
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We recently opened new branches which may not become profitable as soon as
anticipated, if at all. |
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If our allowance for loan losses is not sufficient to cover actual loan losses,
our earnings could decrease. |
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Our stock value may be negatively affected by federal regulations restricting
takeovers and our mutual holding company structure. |
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Persons who purchase our stock will own a minority of Rockville Financial,
Inc.s common stock and might not be able to exercise voting control over most
matters put to a vote of stockholders. |
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When we declare dividends on our common stock, Rockville Financial MHC, Inc.
might be prohibited from waiving the receipt of dividends by current Federal
Reserve Board policy. |
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Further implementation of our stock benefit plans could increase our costs,
which could reduce our income. |
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Because we intend to continue to increase our commercial real estate and
commercial business loan originations, our lending risk may increase, and
downturns in the real estate market or local economy could adversely affect our
earnings. |
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The trading volume in our stock is less than in larger publicly traded
companies which can cause price volatility, hinder your ability to sell our common
stock and may lower the market price of the stock. |
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The Emergency Economic Stabilization Act (EESA) of 2008 has had a profound
effect on the financial services industry. The effect of programs developed under
EESA, including the Troubled Asset Recovery and Capital Purchase Programs in which
we did not participate, could dramatically change the competitive environment in
which we operate. |
Any forward-looking statements made by or on behalf of us in this Form 10-K speak only as
of the date of this Form 10-K. We do not undertake to update forward-looking statements
to reflect the impact of circumstances or events that arise after the date the
forward-looking statement was made. The reader should, however, consult any further
disclosures of a forward-looking nature we may make in future filings.
4
Item 1. Business
General
Rockville Financial, Inc., (the Company), a state-chartered mid-tier stock holding
company holds all of the common stock of Rockville Bank (the Bank). The Federal Reserve
Board regulates the Company, a mid-tier stock holding company, and its parent, Rockville
Financial MHC, Inc., the top-tier mutual holding company.
The Bank is a state-chartered stock savings bank organized in Connecticut in 1858 that
provides a full range of banking services to consumer and commercial customers through
its main office in Rockville, CT, twenty-one branches located in Hartford, New London and
Tolland Counties in Connecticut and 45 automated teller machines (ATM), including 13
stand-alone ATM facilities. The Bank is regulated by the State of Connecticut Department
of Banking and the Federal Deposit Insurance Corporation (the FDIC). The Banks
deposits are insured to the maximum allowable under the Deposit Insurance Fund, which is
administered by the Federal Deposit Insurance Corporation. The Bank is a member of the
Federal Home Loan Bank of Boston (FHLBB).
The Company strives to remain a leader in meeting the financial service needs of the
local community and to provide quality service to the individuals, families,
professionals and businesses in the market areas it serves. Rockville Bank is a
community-oriented provider of traditional banking products and services to business
organizations and individuals, offering products such as residential, commercial real
estate, commercial business and consumer loans and a variety of deposit products.
The Companys business philosophy is to remain an independent, community-oriented
franchise and to continue to focus on providing superior customer service to meet the
financial needs of the communities in which we operate. Current strategies include
expanding our banking network by pursuing new branch locations and branch acquisition
opportunities in our market area, continuing our residential mortgage lending activities
and expanding our commercial real estate and commercial business lending activities.
The Company employed 211 full-time equivalent employees at December 31, 2009. Management
of the Company and the Bank are substantially identical. The Company does not own or
lease any property but instead uses the premises, equipment and furniture of the Bank.
Competition
We face competition within our market area both in making loans and attracting deposits.
Hartford, New London and Tolland Counties have a high concentration of financial
institutions including large commercial banks, community banks and credit unions. Some of
our competitors offer products and services that we currently do not offer, such as trust
services and private banking. As of June 30, 2009, based on the FDICs most recent annual
Summary of Deposits Report, our market share of deposits represented 25.1% of deposits in
Tolland County, the second largest market share in that county, 2.0% of deposits in
Hartford County and 0.4% of deposits in New London County.
Our competition for loans and deposits comes principally from commercial banks, savings
institutions, mortgage banking firms and credit unions. We face additional competition
for deposits from money market funds, brokerage firms, mutual funds and insurance
companies. Our primary focus is to build and develop profitable customer relationships
across all lines of business while continuing to support the communities within our
service area.
Market Area
We operate in a primarily suburban market area that has a stable population and household
base. All of our current offices are located in Connecticut in Hartford, New London and
Tolland Counties. Our market area is located in the north central part of Connecticut
including, in part, the eastern part of the greater Hartford metropolitan area. Our main
office is located in Rockville and is located approximately 15 miles from Hartford.
Hartford, New London and Tolland Counties have a mix of industry groups and employment
sectors, including services, wholesale/retail trade and manufacturing as the basis of the
local economy. Our primary market area for deposits includes the communities in which we
maintain our banking office locations. Our primary lending area is broader
5
than our primary deposit market area and includes all of Hartford, New London and Tolland
Counties, and parts of the adjacent Windham and Middlesex Counties. In addition to our
primary lending areas we have expanded lending activities to include an out of state
regional commercial real estate lending program.
Lending Activities
Historically, our principal lending activity has been the origination of first mortgage
loans for the purchase or refinancing of one-to-four family residential real estate.
One-to-four family residential real estate mortgage loans represented $754.8 million, or
55.0%, of our loan portfolio at December 31, 2009. We also offer commercial real estate
loans, commercial business loans, construction mortgage loans and consumer loans.
Commercial real estate loans totaled $426.0 million, or 31.0%, of our total loan
portfolio at December 31, 2009. Commercial business loans totaled $113.2 million, or
8.3%, of our total loan portfolio at December 31, 2009. Construction mortgage loans
totaled $71.1 million, or 5.2%, of our loan portfolio at December 31, 2009. Consumer
loans, consisting primarily of loans on new and used automobiles, loans secured by
deposit accounts and unsecured personal loans, totaled $7.7 million, or 0.6%, of our
total loan portfolio at December 31, 2009. As of December 31, 2009, loans to borrowers
engaged in similar activities did not exceed 10% of total loans outstanding. The largest
exposure to a related group was $19.5 million at December 31, 2009. These loans are
performing according to their terms. Our net deferred loan fees and premiums totaled
$632,000 at December 31, 2009.
The composition of the Banks loan portfolio was as follows at the dates indicated:
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At December 31, |
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2009 |
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2008 |
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2007 |
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2006 |
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2005 |
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Amount |
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Percent |
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Amount |
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Percent |
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Amount |
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Percent |
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Amount |
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Percent |
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Amount |
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Percent |
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(Dollars in thousands) |
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Real estate loans: |
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Residential (1) |
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$ |
754,838 |
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54.98 |
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$ |
746,041 |
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57.26 |
% |
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$ |
666,003 |
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59.18 |
% |
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$ |
640,076 |
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61.46 |
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$ |
557,306 |
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64.31 |
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Commercial |
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426,028 |
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31.03 |
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351,474 |
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26.97 |
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284,460 |
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25.28 |
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232,550 |
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22.33 |
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149,006 |
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17.19 |
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Construction (2) |
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71,078 |
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5.18 |
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89,099 |
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6.84 |
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70,617 |
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6.27 |
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63,902 |
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6.14 |
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47,105 |
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5.44 |
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Commercial business loans |
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113,240 |
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8.25 |
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106,684 |
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8.19 |
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92,869 |
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8.25 |
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97,234 |
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9.34 |
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109,099 |
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12.59 |
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Installment, collateral and other loans |
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7,742 |
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0.56 |
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9,629 |
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0.74 |
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11,469 |
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1.02 |
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7,607 |
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0.73 |
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4,119 |
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0.47 |
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Total loans |
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1,372,926 |
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100.00 |
% |
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1,302,927 |
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100.00 |
% |
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1,125,418 |
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100.00 |
% |
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1,041,369 |
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100.00 |
% |
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866,635 |
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100.00 |
% |
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Net deferred loan costs and premiums |
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632 |
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1,417 |
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1,529 |
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1,813 |
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1,740 |
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Allowance for loan losses |
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(12,539 |
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(12,553 |
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(10,620 |
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(9,827 |
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(8,675 |
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Loans, net |
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$ |
1,361,019 |
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$ |
1,291,791 |
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$ |
1,116,327 |
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$ |
1,033,355 |
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$ |
859,700 |
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Residential mortgage loans include one-to-four family mortgage loans, home
equity loans, and home equity lines of credit. |
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(2) |
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Construction loans include commercial and residential loans and are reported
net of undisbursed construction loans of $86.5 million, $93.9 million, $96.8 million,
$93.6 million and $64.1 million as of December 31, 2009, 2008, 2007, 2006 and 2005,
respectively. |
Residential Mortgage Loans: One of our primary lending activities consists of the
origination of one-to-four family residential mortgage loans that are primarily secured
by properties located in Hartford, New London and Tolland Counties. Of the $754.8 million
one-to-four family residential mortgage loans at December 31, 2009, $69.6 million were
fixed rate home equity loans and $118.7 million consisted of balances outstanding on home
equity lines of credit. Generally, one-to-four family residential mortgage loans are
originated in amounts up to 80% of the lesser of the appraised value or purchase price of
the property, with private mortgage insurance required on loans with a loan-to-value
ratio in excess of 80%. We usually do not make loans with a loan-to-value ratio in
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excess of 97% for loans secured by single-family homes. Fixed rate mortgage loans
generally are originated for terms of 10, 15, 20, 25 and 30 years. Typically, all fixed
rate residential mortgage loans are underwritten according to Federal Home Loan Mortgage
Corporation (Freddie Mac) policies and procedures. Fixed rate residential mortgage
loans are periodically sold in the secondary market. We will usually retain the servicing
rights for all loans that we sell in the secondary market. We originated $132.4 million
of fixed rate one-to-four family residential loans during the year ended December 31,
2009, $44.0 million of which were sold in the secondary market.
We also offer adjustable-rate mortgage loans for one-to-four family properties, with an
interest rate which adjusts annually based on the one-year Constant Maturity Treasury
Bill Index, after either a one-, three-, four-, five-, seven-, or nine-year initial fixed
rate period. We originated $71.7 million of adjustable rate one-to-four family
residential loans during the year ended December 31, 2009. Additionally, we purchased
$2.5 million in adjustable rate mortgages from two local mortgage banking firms during
the year ended December 31, 2009. Our adjustable rate mortgage loans generally provide
for maximum rate adjustments of 200 basis points per adjustment, with a lifetime maximum
adjustment up to 6%, regardless of the initial rate. Our adjustable rate mortgage loans
amortize over terms of up to 30 years.
Adjustable rate mortgage loans decrease the risk associated with changes in market
interest rates by periodically repricing, but involve other risks because, as interest
rates increase, the underlying payments by the borrower increase, thus increasing the
potential for default by the borrower. At the same time, the marketability of the
underlying collateral may be adversely affected by higher interest rates. Upward
adjustment of the contractual interest rate is also limited by the maximum periodic and
lifetime interest rate adjustments permitted by our loan documents and, therefore, the
effectiveness of adjustable rate mortgage loans may be limited during periods of rapidly
rising interest rates. Of our one-to-four family residential loans, $178.7 million, or
31.5%, had adjustable rates of interest at December 31, 2009 and $86.4 million of these
loans will see a rate reset in the next twelve months. Continued declines in real estate
values and the slow down in the housing market may make it more difficult for borrowers
experiencing financial difficulty to sell their homes or refinance their debt due to
their declining collateral values.
In an effort to provide financing for low and moderate income home buyers, we offer a
first time home buyer program at reduced rates and favorable closing costs. This program
allows the first time home buyer to borrow with lower down payment requirements, lower
origination points, and reduced fees. These loans are offered with adjustable rates of
interest at terms of up to 30 years. Such loans are secured by one-to-four family
residential properties. All of these loans are originated using government agency
underwriting guidelines.
All residential mortgage loans that we originate include due-on-sale clauses, which
give us the right to declare a loan immediately due and payable in the event that, among
other things, the borrower sells or otherwise disposes of the real property. We also
require homeowners insurance and, where circumstances warrant, flood insurance on
properties securing real estate loans. At December 31, 2009, our largest residential
mortgage loan had a principal balance of $1.6 million. This loan is performing in
accordance with its repayment terms.
We also offer home equity loans and home equity lines of credit, both of which are
secured by owner-occupied one-to-four family residences. At December 31, 2009, home
equity loans and equity lines of credit totaled $188.3 million, or 13.7%, of total loans.
At December 31, 2009, the unadvanced amounts of home equity lines of credit totaled
$125.5 million. The underwriting standards utilized for home equity loans and home equity
lines of credit include a determination of the applicants credit history, an assessment
of the applicants ability to meet existing obligations and payments on the proposed loan
and the value of the collateral securing the loan. Home equity loans are offered with
fixed rates of interest and with terms up to 15 years. The loan-to-value ratio for our
home equity loans and our lines of credit is generally limited to no more than 90%. Our
home equity lines of credit have ten year terms and adjustable rates of interest which
are indexed to the prime rate, as reported in The Wall Street Journal. Interest rates on
home equity lines of credit are generally limited to a maximum rate of 18% per annum.
Commercial Real Estate Loans: We originate commercial real estate loans and loans on
owner- occupied properties used for a variety of business purposes including small office
buildings, industrial facilities and retail facilities. These projects are generally
located in our primary market
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area. At December 31, 2009, commercial mortgage loans totaled $426.0 million, or 31.0%,
of total loans. Our commercial real estate underwriting policies provide that typically
such real estate loans may be made in amounts of up to 80% of the appraised value of the
property provided such loan complies with our current loans-to-one borrower limit. Our
commercial real estate loans may be made with terms of up to 20 years and amortization
schedules up to 30 years and are offered with interest rates that are fixed or adjust
periodically and are generally indexed to the Federal Home Loan Bank of Boston Classic
Advance Rates. In reaching a decision on whether to make a commercial real estate loan,
we consider gross revenues and the net operating income of the property, the borrowers
expertise, business cash flow and credit history, and the appraised value of the
underlying property. In addition, with respect to commercial real estate rental
properties, we will also consider the terms and conditions of the leases and the credit
quality of the tenants. We typically require that the properties securing these real
estate loans have debt service coverage ratios (the ratio of earnings before interest,
taxes, depreciation and amortization divided by interest expense and current maturities
of long term debt) of at least 1.15 times. Environmental surveys are generally required
for commercial real estate loans. Generally, commercial real estate loans made to
corporations, partnerships and other business entities require personal guarantees by the
principals and owners of 20% or more of the entity.
A commercial borrowers financial information is monitored on an ongoing basis by
requiring periodic financial statement updates, payment history reviews and typically
includes periodic face-to-face meetings with the borrower. We generally require
commercial borrowers to provide updated financial statements and federal tax returns
annually. These requirements also apply to all guarantors on commercial loans. We also
require borrowers with rental investment property to provide an annual report of income
and expenses for the property, including a tenant list and copies of leases, as
applicable. The largest commercial real estate loan or commitment as of December 31, 2009
was a loan for $19.5 million, which was performing according to its terms.
Loans secured by commercial real estate, including multi-family properties, generally
involve larger principal amounts and a greater degree of risk than one-to-four family
residential mortgage loans. Because payments on loans secured by commercial real estate,
including multi-family properties, are often dependent on successful operation or
management of the properties, repayment of such loans may be affected by adverse
conditions in the real estate market or the economy.
Commercial Construction Loans: We offer commercial construction loans including real
estate subdivision development loans to licensed contractors and builders for the
construction and development of commercial real estate projects and one-to-four family
residential properties. At December 31, 2009, commercial construction loans totaled $62.6
million, which amounted to 4.6%, of total loans outstanding. At December 31, 2009, the
unadvanced portion of these construction loans totaled $83.6 million. Our commercial real
estate underwriting policies provide that typically such real estate loans may be made in
amounts of up to 80% of the appraised value of the property provided such loan complies
with our current loans-to-one borrower limit. We extend loans to residential subdivision
developers for the purpose of land acquisition, the development of infrastructure and the
construction of homes. Advances are determined as a percentage of cost or appraised value
(whichever is less) and the project is physically inspected prior to each advance. We
typically limit the numbers of model homes financed by a customer, with the majority of
construction advances supported by purchase contracts. As of December 31, 2009, the
largest outstanding commercial construction loan commitment to a single borrower totaled
$14.8 million with $10.5 million of advances drawn as of December 31, 2009, which were
performing according to their terms. Commercial real estate subdivision loans, commercial
real estate and one-to-four family residential loans to contractors entails significant
additional risks as compared with single-family residential mortgage lending to
owner-occupants. These loans typically involve large loan balances concentrated in single
borrowers or groups of related borrowers. A continued economic downturn could have an
additional adverse impact on the value of the properties securing construction loans and
on the borrowers ability to sell the units for the amounts necessary to complete the
project and repay the loans.
Residential Construction Loans: We originate construction loans to individuals and
contractors for the construction and acquisition of personal residences. At December 31,
2009, residential construction mortgage loans amounted to $8.5 million, or 0.6%, of total
loans. At December 31, 2009, the unadvanced portion of these construction loans totaled
$2.9 million.
8
Our residential construction mortgage loans generally provide for the payment of interest
only during the construction phase, which is typically up to nine months although our
policy is to consider construction periods as long as 12 months. At the end of the
construction phase, the construction loan converts to a long-term owner-occupied
residential mortgage loan. Construction loans can be made with a maximum loan-to-value
ratio of 80%. At December 31, 2009, our largest residential construction mortgage loan
commitment was for $2.0 million, all of which had been disbursed. This loan is performing
according to its terms. Construction loans to individuals are generally made on the same
terms as our one-to-four family mortgage loans.
Before making a commitment to fund a residential construction loan, we require an
appraisal of the property by an independent licensed appraiser. We also review and
inspect each property before disbursement of funds during the term of the construction
loan. Loan proceeds are disbursed after inspection based on the percentage of completion
method.
Construction financing is generally considered to involve a higher degree of credit risk
than longer-term financing on improved, owner-occupied real estate. Risk of loss on a
construction loan depends largely upon the accuracy of the initial estimate of the value
of the property at completion of construction compared to the actual cost (including
interest) of construction and other assumptions. If the estimate of construction cost is
too low, we may be required to advance funds beyond the amount originally committed in
order to protect the value of the property. Additionally, if the estimate of value is too
high, we may be confronted with a project, when completed, with a value that is
insufficient to assure full payment. Construction lending contains a unique risk
characteristic as loans are originated under market and economic conditions that may
change between the time of origination and the completion and subsequent purchaser
financing of the property.
Commercial Business Loans: At December 31, 2009, we had $113.2 million in commercial
business loans, of which $24.5 million were guaranteed by either the Small Business
Administration (SBA) or the United States Department of Agriculture (USDA). We
occasionally purchase USDA guaranteed loans in the secondary loan market from various
experienced brokers. These loans carry a variable rate and adjust on a quarterly basis
using the prime rate as the base index. There is no risk of loss of principal or accrued
interest up to loan payment dates, as we only purchase the guaranteed portion of the
loan. The guarantee is that of the full faith and credit of the United States of America.
We determine the loans to be purchased based on net yield, borrower credit rating, size
and the business segment composition of the existing portfolio. Monthly payments are
received directly from the original lending institution. As of December 31, 2009, of the
$24.5 million guaranteed loans, $1.8 million are SBA loans originated by us and $22.7
million were purchased and are fully guaranteed by the USDA. In addition to the SBA and
USDA loans, our commercial business loan portfolio at December 31, 2009 included $33.8
million in revolving business lines of credit with an additional $57.7 million of unused
lines of credit commitments and $54.9 million in commercial business term loans. Total
commercial business loans amounted to 8.3% of total loans as of December 31, 2009.
We make commercial business loans primarily in our market area to a variety of
professionals, sole proprietorships and small businesses. Commercial business lending
products include term loans and revolving lines of credit. The maximum amount of a
commercial business loan is limited by our loans-to-one-borrower limit (15% of equity
capital and our allowance for loan losses, pursuant to Connecticut law) to which there
were no exceptions as of December 31, 2009. Such loans are generally used for longer-term
working capital purposes such as purchasing equipment or financing short term cash needs.
Commercial business loans are made with either adjustable or fixed rates of interest.
Variable rates are based on the prime rate, as published in The Wall Street Journal, plus
a margin. Fixed rate commercial loans are set at a margin above the Federal Home Loan
Bank of Boston Classic Advance Rates.
When making commercial business loans, we consider the financial statements of the
borrower, our lending history with the borrower, the debt service capabilities of the
borrower, the projected cash flows of the business and the value of the collateral.
Commercial business loans are generally secured by a variety of collateral, primarily
accounts receivable, inventory and equipment, and are supported by personal guarantees.
Depending on the collateral used to secure the loans, commercial business loans are
typically made up to 80% of the value of the loan collateral. We do not typically make
unsecured commercial business loans greater than $100,000.
9
Commercial business loans generally have greater credit risk than residential mortgage
loans. Unlike residential mortgage loans, which generally are made on the basis of the
borrowers ability to make repayment from his or her employment or other income, and
which are secured by real property whose value tends to be more easily ascertainable,
commercial business loans generally are made on the basis of the borrowers ability to
repay the loan from the cash flow of the borrowers business. As a result, the
availability of funds for the repayment of commercial business loans may depend
substantially on the success of the business itself. Further, any collateral securing the
loans may depreciate over time, may be difficult to appraise and may fluctuate in value.
We seek to minimize these risks through our underwriting standards. At December 31, 2009,
our largest commercial business loan commitment totaled $15.0 million with $12.9 million
of advances drawn as of December 31, 2009, which were performing according to their
terms. In addition to the commercial business loans discussed above, we had $10.6 million
in outstanding letters of credit as of December 31, 2009.
Installment, Collateral and Other Loans: We offer a limited range of installment and
collateral consumer loans, principally to customers residing in our primary market area
with acceptable credit ratings. Our installment and collateral consumer loans generally
consist of loans on new and used automobiles, including indirect automobile loans, loans
collateralized by deposit accounts and unsecured personal loans. Installment and
collateral consumer loans totaled $7.7 million or 0.6% of our total loan portfolio at
December 31, 2009. This portfolio includes $2.0 million of fully secured collateral
loans, $5.0 million of direct and indirect auto loans and $754,000 of other consumer
unsecured loans. While the asset quality of these portfolios is currently good, there is
increased risk associated with auto and consumer loans during economic downturns as
increased unemployment and inflationary costs may make it more difficult for some
borrowers to repay their loans.
Origination, Purchasing and Servicing of Loans: All loans originated by us are
underwritten pursuant to our policies and procedures. We originate both adjustable rate
and fixed rate loans. Our ability to originate fixed or adjustable rate loans is
dependent upon the relative customer demand for such loans, which is affected by the
current and expected future level of interest rates.
Generally, we retain in our portfolio all loans that we originate, however, for strategic
reasons, including our interest rate risk management objectives, we periodically sell
fixed rate residential mortgage loans which conform to the underwriting standards
specified by Freddie Mac. We also sell all mortgage loans insured by the Connecticut
Housing Finance Authority (CHFA). All one-to-four family loans that we sell are sold
pursuant to master commitments negotiated with Freddie Mac and are sold on a non-recourse
basis. Historically, in such instances, our loans have been typically sold to either
Federal National Mortgage Association (Fannie Mae) or Freddie Mac, and we have
retained the rights to service those loans. We currently have no reason to believe our
practices will change in the near future. Depending on interest rate levels at the time
of any such sale, loans may be sold at either a net gain or a net loss. Additionally,
there is no guarantee we will be able to reinvest the proceeds from any future loan sales
at interest rates comparable to the interest rates on the loans that are sold.
Reinvestment in loans with lower interest rates would result in lower interest income on
the reinvested proceeds compared to the interest income previously generated by the loans
that were sold.
At December 31, 2009, the Company was servicing loans sold in the amount of $57.7
million. Loan servicing includes collecting and remitting loan payments, accounting for
principal and interest, contacting delinquent mortgagors, supervising foreclosures and
property dispositions in the event of unremedied defaults, making certain insurance and
tax payments on behalf of the borrowers and generally administering the loans.
In addition to purchasing loans guaranteed by the USDA or SBA, the Company purchases
adjustable rate one-to-four family residential mortgage loans from two local mortgage
banking firms licensed with the Connecticut Department of Banking. These local mortgage
bankers are not employed by the Company and sell their loans based on competitive
pricing. During the year ended December 31, 2009, the Company purchased $2.5 million in
adjustable rate loans from these firms, underwritten to the same credit specifications as
the Companys internally originated loans.
10
Loan Maturity Schedule
The following table sets forth the loan maturity schedule at December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans Maturing |
|
|
|
|
|
|
|
After One |
|
|
|
|
|
|
|
|
|
Within One |
|
|
But Within |
|
|
|
|
|
|
|
|
|
Year |
|
|
Five Years |
|
|
After Five Years |
|
|
Total |
|
|
|
(In thousands) |
|
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential(1) |
|
$ |
1,329 |
|
|
$ |
27,178 |
|
|
$ |
726,331 |
|
|
$ |
754,838 |
|
Commercial |
|
|
8,063 |
|
|
|
76,036 |
|
|
|
341,929 |
|
|
|
426,028 |
|
Construction |
|
|
11,130 |
|
|
|
21,400 |
|
|
|
38,548 |
|
|
|
71,078 |
|
Commercial
business loans |
|
|
2,378 |
|
|
|
33,970 |
|
|
|
76,892 |
|
|
|
113,240 |
|
Installment, collateral and other loans |
|
|
228 |
|
|
|
5,603 |
|
|
|
1,911 |
|
|
|
7,742 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
23,128 |
|
|
$ |
164,187 |
|
|
$ |
1,185,611 |
|
|
$ |
1,372,926 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans Contractually Due Subsequent to December 31, 2009
The following table sets forth the scheduled repayments of fixed and adjustable rate
loans at December 31, 2009 that are contractually due after December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due After December 31, 2010 |
|
|
|
Fixed |
|
|
Adjustable |
|
|
Total |
|
|
|
(In thousands) |
|
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Residential(1) |
|
$ |
456,689 |
|
|
$ |
296,820 |
|
|
$ |
753,509 |
|
Commercial |
|
|
164,693 |
|
|
|
253,272 |
|
|
|
417,965 |
|
Construction |
|
|
|
|
|
|
59,948 |
|
|
|
59,948 |
|
Commercial business loans |
|
|
17,520 |
|
|
|
93,342 |
|
|
|
110,862 |
|
Installment, collateral and other loans |
|
|
6,941 |
|
|
|
573 |
|
|
|
7,514 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
$ |
645,843 |
|
|
$ |
703,955 |
|
|
$ |
1,349,798 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Residential mortgage loans include one-to-four
family mortgage loans, home equity loans, and home equity lines of credit. |
Loan Approval Procedures and Authority: The Companys lending activities follow
written, non-discriminatory, underwriting standards and loan origination procedures
established by the Banks Board of Directors. The loan approval process is intended to
assess the borrowers ability to repay the loan, the viability of the loan, and the
adequacy of the value of the property that will secure the loan, if applicable. To assess
the borrowers ability to repay, we review the employment and credit history and
information on the historical and projected income and expenses of borrowers.
The Companys policies and loan approval limits are established by the Banks Board of
Directors. The Board of Directors has designated lending authority based on officer level
and loan type to a limited group of officers to approve loans of various amounts up to
$500,000. The President, the Executive Vice President and the Senior Vice President,
Commercial Banking Officer can approve loans for up to and including $1.5 million. Loans
over $1.5 million up to $5.0 million are approved by the Board of Directors Lending
Committee. Loans above $5.0 million must be approved by the Board of Directors.
Non-performing
and Problem Assets Delinquency notices are mailed monthly to all delinquent borrowers, advising them of the
amount of their delinquency. When a loan becomes more than 30 days delinquent, the Bank
sends a letter advising the borrower of the delinquency. The borrower is given 30 days to
pay the delinquent payments or to contact the Bank to make arrangements to bring the loan
current over a longer period of time. If the borrower fails to bring the loan current
within 90 days from the original due date or to
11
make arrangements to cure the delinquency over a longer period of time, the matter is
referred to legal counsel and foreclosure or other collection proceedings are started. We
may consider forbearance in select cases where a temporary loss of income is the primary
cause of the delinquency, if a reasonable plan is presented by the borrower to cure the
delinquency in a reasonable period of time after his or her income resumes.
All non-commercial mortgage loans are reviewed on a regular basis, and such loans are
placed on non-accrual status when they become more than 90 days delinquent. Commercial
real estate and commercial business loans are evaluated for non-accrual status on a
case-by-case basis, but are typically placed on a non-accrual status when they become
more than 90 days delinquent. When loans are placed on non-accrual status, unpaid accrued
interest is reversed, and further income is recognized only to the extent received. For
the year ended December 31, 2009, $233,000 of interest income related to non-accrual
loans was reversed compared to $237,000 recorded for 2008.
Classified Assets: Under our internal risk rating system, we currently classify loans
and other assets considered to be of lesser quality as substandard, doubtful, loss
or impaired assets. An asset is considered substandard if it is inadequately
protected by either the current net worth or the paying capacity of the obligor or by the
collateral pledged, if any. Substandard assets include those characterized by the
distinct possibility that the institution will sustain some loss if the deficiencies are
not corrected. Assets classified as doubtful have all of the weaknesses inherent in
those classified substandard, with the added characteristic that the weaknesses present
make collection or liquidation in full, on the basis of currently existing facts,
conditions, and values, highly questionable and improbable. Assets classified as loss
are those considered uncollectible and of such little value that their continuance as
assets without the establishment of a specific loss reserve is not warranted. Assets
classified as impaired are those that exhibit elevated risk characteristics that
differentiate themselves from the homogeneous loan categories.
The loan portfolio is reviewed on a regular basis to determine whether any loans require
risk classification or reclassification. Not all classified assets constitute
non-performing assets.
12
Loan Delinquencies
The following table sets forth certain information with respect to our loan portfolio
delinquencies at the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans Delinquent For |
|
|
Total |
|
|
|
60-89 Days |
|
|
90 Days and Over |
|
|
|
|
|
|
|
|
|
Number |
|
|
Amount |
|
|
Number |
|
|
Amount |
|
|
Number |
|
|
Amount |
|
|
|
(Dollars in thousands) |
|
At December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential(1) |
|
|
11 |
|
|
$ |
2,072 |
|
|
|
17 |
|
|
$ |
1,970 |
|
|
|
28 |
|
|
$ |
4,042 |
|
Commercial |
|
|
1 |
|
|
|
421 |
|
|
|
5 |
|
|
|
2,242 |
|
|
|
6 |
|
|
|
2,663 |
|
Construction |
|
|
|
|
|
|
|
|
|
|
7 |
|
|
|
6,630 |
|
|
|
7 |
|
|
|
6,630 |
|
Commercial business
loans |
|
|
1 |
|
|
|
20 |
|
|
|
2 |
|
|
|
41 |
|
|
|
3 |
|
|
|
61 |
|
Installment, collateral
and other loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
13 |
|
|
$ |
2,513 |
|
|
|
31 |
|
|
$ |
10,883 |
|
|
|
44 |
|
|
$ |
13,396 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential(1) |
|
|
9 |
|
|
$ |
1,237 |
|
|
|
8 |
|
|
$ |
1,357 |
|
|
|
17 |
|
|
$ |
2,594 |
|
Commercial |
|
|
2 |
|
|
|
652 |
|
|
|
2 |
|
|
|
1,202 |
|
|
|
4 |
|
|
|
1,854 |
|
Construction |
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
3,021 |
|
|
|
4 |
|
|
|
3,021 |
|
Commercial business
loans |
|
|
3 |
|
|
|
923 |
|
|
|
2 |
|
|
|
372 |
|
|
|
5 |
|
|
|
1,295 |
|
Installment, collateral
and other loans |
|
|
3 |
|
|
|
47 |
|
|
|
8 |
|
|
|
339 |
|
|
|
11 |
|
|
|
386 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
17 |
|
|
$ |
2,859 |
|
|
|
24 |
|
|
$ |
6,291 |
|
|
|
41 |
|
|
$ |
9,150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential(1) |
|
|
4 |
|
|
$ |
389 |
|
|
|
6 |
|
|
$ |
407 |
|
|
|
10 |
|
|
$ |
796 |
|
Commercial |
|
|
2 |
|
|
|
79 |
|
|
|
1 |
|
|
|
74 |
|
|
|
3 |
|
|
|
153 |
|
Construction |
|
|
1 |
|
|
|
515 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
515 |
|
Commercial business
loans |
|
|
2 |
|
|
|
164 |
|
|
|
2 |
|
|
|
692 |
|
|
|
4 |
|
|
|
856 |
|
Installment, collateral
and other loans |
|
|
2 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
11 |
|
|
$ |
1,151 |
|
|
|
9 |
|
|
$ |
1,173 |
|
|
|
20 |
|
|
$ |
2,324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Residential mortgage loans include one-to-four family mortgage
loans, home equity loans, and home equity lines of credit. |
13
Non-performing Assets: The table below sets forth the amounts and categories of our
non-performing assets at the dates indicated. Once a loan is 90 days delinquent or either
the borrower or the loan collateral experiences an event that makes collectibility
suspect, the loan is placed on non-accrual status. Company policy requires six months
of continuous payments in order for the loan to be removed from non-accrual status.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
(Dollars in thousands) |
|
Non-accrual loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential(1) |
|
$ |
3,106 |
|
|
$ |
2,607 |
|
|
$ |
407 |
|
|
$ |
422 |
|
|
$ |
821 |
|
Commercial |
|
|
2,242 |
|
|
|
2,726 |
|
|
|
74 |
|
|
|
311 |
|
|
|
667 |
|
Construction |
|
|
6,630 |
|
|
|
4,385 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business loans |
|
|
61 |
|
|
|
334 |
|
|
|
692 |
|
|
|
114 |
|
|
|
172 |
|
Installment, collateral and other loans |
|
|
7 |
|
|
|
11 |
|
|
|
5 |
|
|
|
8 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-accrual loans(2) |
|
|
12,046 |
|
|
|
10,063 |
|
|
|
1,178 |
|
|
|
855 |
|
|
|
1,666 |
|
Accruing loans past due 90 days or more |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,897 |
(3) |
Other accruing loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78 |
|
|
|
|
|
Troubled debt restructurings |
|
|
|
|
|
|
372 |
|
|
|
391 |
|
|
|
560 |
|
|
|
614 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans |
|
|
12,046 |
|
|
|
10,435 |
|
|
|
1,569 |
|
|
|
1,493 |
|
|
|
7,177 |
|
Other real estate owned |
|
|
3,061 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-performing assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets |
|
$ |
15,107 |
|
|
$ |
10,435 |
|
|
$ |
1,569 |
|
|
$ |
1,493 |
|
|
$ |
7,177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans to total loans |
|
|
0.88 |
% |
|
|
0.80 |
% |
|
|
0.14 |
% |
|
|
0.14 |
% |
|
|
0.83 |
%(4) |
Total non-performing loans to total assets |
|
|
0.77 |
% |
|
|
0.68 |
% |
|
|
0.12 |
% |
|
|
0.12 |
% |
|
|
0.68 |
%(5) |
|
|
|
(1) |
|
Residential mortgage loans include one-to-four family mortgage loans, home
equity loans, and home equity lines of credit. |
|
(2) |
|
The amount of income that was contractually due but not recognized on
non-accrual loans totaled $233,000 and $237,000 for the years ended December 31,
2009 and 2008, respectively. |
|
(3) |
|
Balance represents a loan that was fully guaranteed by the United States
Department of Agriculture and was repaid in full in January 2006. |
|
(4) |
|
The ratio is 0.26% when excluding the $4.9 million fully guaranteed United
States Department of Agriculture loan that was past due 90 days and still accruing
as of December 31, 2005 which was repaid in full in January, 2006. |
|
(5) |
|
The ratio is 0.22% when excluding the $4.9 million fully guaranteed United
States Department of Agriculture loan that was past due 90 days and still accruing
as of December 31, 2005 which was repaid in full in January, 2006. |
Potential problem loans: The Bank performs an internal analysis of the loan
portfolio in order to identify and quantify loans with higher than normal risk. Loans
having a higher risk profile are assigned a risk rating corresponding to the level of
weakness identified in the loan. All loans risk rated, Special Mention, Substandard or
Doubtful are reviewed by management on a quarterly basis to assess the level of risk and
to ensure that appropriate actions are being taken to minimize potential loss exposure.
Loans identified as being Loss are normally fully charged off. Typically, loans risk
rated Substandard or more severe are transferred to the Special Assets area. All special
mention, substandard and doubtful loans are included on the Companys watchlist which
is updated quarterly. See Item 7 Managements Discussion and Analysis of Financial
Condition and Results of Operation for further discussion of non-performing assets.
The Company closely monitors the watchlist for signs of deterioration to mitigate the
growth in non-accrual loans. At December 31, 2009, $15.8 million of commercial loans and
$1.5 million of residential and consumer loans were included on the watchlist that are
not considered impaired.
14
Allowance for Loan Losses
Rockville Bank maintains an allowance for loan losses to reflect the level of loss
inherent in the loan portfolio. The assessment of loss is comprised of an evaluation of
homogeneous loan pools, a specific analysis of loans that are impaired in order to assess
the value of the underlying collateral or future cash flows in determining the amount of
estimated loss and a general, unallocated pool. In 2007, the Bank adopted
certain changes to the ALLL methodology in order to conform to the Interagency Policy
Statement on the Allowance for Loan and Lease Losses that was published by federal bank
regulatory agencies in December 2006. At December 31, 2006, the unallocated allowance
totaled $1.562 million and decreased to $838 million at December 31, 2007 as the revised
methodology resulted in a more precise allocation based on the risk analysis by
homogeneous loan type. Continued refinement of the methodology is primarily responsible
for the subsequent decreases in the unallocated amount to $212,000 at December 31, 2008
and to $209,000 at December 31, 2009.
General Reserve: Homogenous loan pools are determined by loan type and are comprised of:
1) residential first mortgages 2) commercial real estate mortgages 3) residential second
mortgages 4) commercial loans 5) construction loans 6) SBA and USDA guaranteed loans, as
well as, smaller loans pools consisting of unsecured consumer loans, collateral loans and
auto loans. Each of these loan types is evaluated on a quarterly basis to determine
historical loss rates; delinquency; growth and composition trends within the portfolio;
the impact of management and underwriting changes; shifts in risk ratings; and regional
and economic conditions influencing portfolio performance with management allocating loss
factors based on these evaluations.
Specific Reserve: Loans displaying risk characteristics that differentiate themselves
from the homogeneous pool are tested separately for impairment. These loans include those
in non-accrual status, restructured loans or loans which maybe collateral dependent.
Individual evaluations of cash flow or the fair value of collateral supporting these
obligations is performed in order to determine the most probable level of loss or
impairment. Based on this analysis, specific reserves are assigned to the impaired loan
and are incorporated in the calculation of the allowance for loan
losses. The allowance includes a specific component for impaired loans, a general
component for pools of outstanding loans and a small unallocated component for model
imprecision.
Unallocated Reserve: The unallocated allowance represents the results of an analysis
that measures the probable losses inherent in each portfolio. If the allowance for loan
losses is too low, the Company may incur higher provisions for loan loss expense in the
future resulting in lower net income. If an estimate of the allowance for loan losses is
too high, the Company may experience lower provisions for loan loss expense resulting in
higher net income. The unallocated allowance decreased to $209,000 as of December 31,
2009 from $212,000 as of December 31, 2008.
Review of Credit Quality: At the time of loan origination, a risk rating based on a nine
point grading system is assigned to each loan based on the loan officers assessment of
risk. More complex loans, such as commercial business loans and commercial real estate,
require that our internal independent credit area further evaluate the risk rating of the
individual loan, with the credit area having final determination of the appropriate risk
rating. These more complex loans and relationships receive an in-depth analysis and
periodic review to assess the appropriate risk rating on a post-closing basis with
changes made to the risk rating as the borrowers and economic conditions warrant. The
credit quality of the Companys loan portfolio is reviewed by a third party risk
assessment firm and by the Companys internal credit management function. Review findings
are reported periodically to senior management, the Board Lending Committee and the Board
of Directors. This process is supplemented with several risk assessment tools including
monitoring of delinquency levels, analysis of historical loss experience by loan type,
identification of portfolio concentrations by borrower and industry, and a review of
economic conditions that might impact loan quality. Based on these findings the allowance
for each loan type is evaluated. The allowance for loan losses is calculated on a
quarterly basis and reported to the Board of Directors.
Any loan that is 90 or more days delinquent is placed on non-accrual and classified as a
non-performing asset. A loan is classified as impaired when it is probable that the
Company will be unable to collect all amounts due in accordance with the terms of the
loan agreement. An allowance is maintained for impaired loans to reflect the difference,
if any, between the principal balance of the loan and the present value of projected cash
flows, observable fair value or the loans collateral value. In addition, the Companys
bank regulatory agencies periodically review the adequacy of the
15
allowance for loan losses as part of their review and examination processes. The
regulatory agencies may require that the Company recognize additions to the allowance
based on their judgments of information available to them at the time of their review or
examination.
Each quarter, management, in conjunction with the Board Lending Committee, evaluates the
total balance of the allowance for loan losses based on several factors some of which are
not loan specific, but are reflective of the inherent losses in the loan portfolio. This
process includes, but is not limited to, a periodic review of loan collectability in
light of historical experience, the nature and volume of loan activity, conditions that
may affect the ability of the borrower to repay, underlying value of collateral, if
applicable, and economic 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 or classified as trouble debt restructuring are evaluated individually,
based primarily on the value of the collateral securing the loan and the ability of the
borrower to repay as agreed.
Specific loan loss allowances are established as required by this analysis. All 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 managements judgment concerning other matters it considers
significant including the current economic environment. The allowance is allocated to
each category of loan based on the results of the above analysis.
This analysis process is both quantitative and subjective, as it requires management to
make estimates that are susceptible to revisions as more information becomes available.
Although we believe that we have established the allowance at levels to absorb probable
losses, future additions may be necessary if economic or other conditions in the future
differ from the current environment.
16
Schedule of Allowance for Loan Losses
The following table sets forth activity in the allowance for loan losses for the years
indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or For the Years Ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
(Dollars in thousands) |
|
Balance at beginning of year |
|
$ |
12,553 |
|
|
$ |
10,620 |
|
|
$ |
9,827 |
|
|
$ |
8,675 |
|
|
$ |
6,371 |
|
Provision for loan losses |
|
|
1,961 |
|
|
|
2,393 |
|
|
|
749 |
|
|
|
1,681 |
|
|
|
2,700 |
|
Charge-offs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate(1) |
|
|
(1,471 |
) |
|
|
(257 |
) |
|
|
(21 |
) |
|
|
(45 |
) |
|
|
|
|
Commercial business loans |
|
|
(593 |
) |
|
|
(314 |
) |
|
|
(76 |
) |
|
|
(498 |
) |
|
|
(591 |
) |
Installment and collateral loans |
|
|
(49 |
) |
|
|
(50 |
) |
|
|
(76 |
) |
|
|
(78 |
) |
|
|
(55 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs |
|
|
(2,113 |
) |
|
|
(621 |
) |
|
|
(173 |
) |
|
|
(621 |
) |
|
|
(646 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate(1) |
|
|
8 |
|
|
|
9 |
|
|
|
5 |
|
|
|
5 |
|
|
|
31 |
|
Commercial business loans |
|
|
114 |
|
|
|
122 |
|
|
|
191 |
|
|
|
70 |
|
|
|
209 |
|
Installment and collateral loans |
|
|
16 |
|
|
|
30 |
|
|
|
21 |
|
|
|
17 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries |
|
|
138 |
|
|
|
161 |
|
|
|
217 |
|
|
|
92 |
|
|
|
250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (charge-offs) recoveries |
|
|
(1,975 |
) |
|
|
(460 |
) |
|
|
44 |
|
|
|
(529 |
) |
|
|
(396 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance at end of year |
|
$ |
12,539 |
|
|
$ |
12,553 |
|
|
$ |
10,620 |
|
|
$ |
9,827 |
|
|
$ |
8,675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses to non-performing loans at end of year |
|
|
104.09 |
% |
|
|
120.30 |
% |
|
|
676.86 |
% |
|
|
658.20 |
% |
|
|
120.87 |
% |
Allowance for loan losses to total loans outstanding at end of year |
|
|
0.91 |
% |
|
|
0.96 |
% |
|
|
0.94 |
% |
|
|
0.94 |
% |
|
|
1.00 |
% |
Net charge-offs to average loans outstanding |
|
|
0.15 |
% |
|
|
0.04 |
% |
|
|
0.00 |
% |
|
|
0.05 |
% |
|
|
0.05 |
% |
|
|
|
(1) |
|
Real estate loans include one-to-four family residential mortgage loans, home
equity loans, home equity lines of credit, commercial real estate and construction
loans. |
Allocation of Allowance for Loan Losses: The following table sets forth the
allowance for loan losses allocated by loan category, the percent of allowance in each
category to total allowance, and the percent of loans in each category to total loans at
the dates indicated. The allowance for loan losses allocated to each category is not
necessarily indicative of future losses in any particular category and does not restrict
the use of the allowance to absorb losses in other categories.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
% of Loans in |
|
|
|
|
|
|
|
|
|
|
% of Loans in |
|
|
|
|
|
|
|
|
|
|
% of Loans in |
|
|
|
Allowance for Loan |
|
|
% of Allowance for |
|
|
Category to Total |
|
|
Allowance for Loan |
|
|
% of Allowance for |
|
|
Category to Total |
|
|
Allowance for Loan |
|
|
% of Allowance for |
|
|
Category to Total |
|
|
|
Losses |
|
|
Loan Losses |
|
|
Loans |
|
|
Losses |
|
|
Loan Losses |
|
|
Loans |
|
|
Losses |
|
|
Loan Losses |
|
|
Loans |
|
|
|
(Dollars in thousands) |
|
Real Estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential(1) |
|
$ |
4,243 |
|
|
|
33.84 |
% |
|
|
54.97 |
% |
|
$ |
3,952 |
|
|
|
31.48 |
% |
|
|
57.26 |
% |
|
$ |
2,673 |
|
|
|
25.17 |
% |
|
|
59.18 |
% |
Commercial |
|
|
4,662 |
|
|
|
37.18 |
|
|
|
31.03 |
|
|
|
3,978 |
|
|
|
31.69 |
|
|
|
26.97 |
|
|
|
3,387 |
|
|
|
31.89 |
|
|
|
25.28 |
|
Construction |
|
|
1,490 |
|
|
|
11.88 |
|
|
|
5.18 |
|
|
|
1,925 |
|
|
|
15.33 |
|
|
|
6.84 |
|
|
|
1,285 |
|
|
|
12.10 |
|
|
|
6.27 |
|
Commercial business loans |
|
|
1,832 |
|
|
|
14.61 |
|
|
|
8.25 |
|
|
|
2,180 |
|
|
|
17.37 |
|
|
|
8.19 |
|
|
|
2,102 |
|
|
|
19.79 |
|
|
|
8.25 |
|
Installment, collateral and other |
|
|
103 |
|
|
|
0.82 |
|
|
|
0.57 |
|
|
|
306 |
|
|
|
2.44 |
|
|
|
0.74 |
|
|
|
335 |
|
|
|
3.16 |
|
|
|
1.02 |
|
Unallocated allowance |
|
|
209 |
|
|
|
1.67 |
|
|
|
|
|
|
|
212 |
|
|
|
1.69 |
|
|
|
|
|
|
|
838 |
|
|
|
7.89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance for loan losses |
|
$ |
12,539 |
|
|
|
100.00 |
% |
|
|
100.00 |
% |
|
$ |
12,553 |
|
|
|
100.00 |
% |
|
|
100.00 |
% |
|
$ |
10,620 |
|
|
|
100.00 |
% |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Loans in |
|
|
|
Allowance for Loan |
|
|
% of Allowance for |
|
|
% of Loans in Category to |
|
|
Allowance for Loan |
|
|
% of Allowance for |
|
|
Category to Total |
|
|
|
Losses |
|
|
Loan Losses |
|
|
Total Loans |
|
|
Losses |
|
|
Loan Losses |
|
|
Loans |
|
|
|
(Dollars in thousands) |
|
Real Estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential(1) |
|
$ |
1,051 |
|
|
|
10.70 |
% |
|
|
61.46 |
% |
|
$ |
1,035 |
|
|
|
11.93 |
% |
|
|
64.31 |
% |
Commercial |
|
|
4,241 |
|
|
|
43.16 |
|
|
|
22.33 |
|
|
|
3,459 |
|
|
|
39.88 |
|
|
|
17.19 |
|
Construction |
|
|
959 |
|
|
|
9.76 |
|
|
|
6.14 |
|
|
|
707 |
|
|
|
8.15 |
|
|
|
5.44 |
|
Commercial business loans |
|
|
1,959 |
|
|
|
19.93 |
|
|
|
9.34 |
|
|
|
1,541 |
|
|
|
17.76 |
|
|
|
12.59 |
|
Installment, collateral and other |
|
|
55 |
|
|
|
0.56 |
|
|
|
0.73 |
|
|
|
27 |
|
|
|
0.31 |
|
|
|
0.47 |
|
Unallocated allowance |
|
|
1,562 |
|
|
|
15.89 |
|
|
|
|
|
|
|
1,906 |
|
|
|
21.97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance for loan losses |
|
$ |
9,827 |
|
|
|
100.00 |
% |
|
|
100.00 |
% |
|
$ |
8,675 |
|
|
|
100.00 |
% |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Residential mortgage loans include one-to-four family mortgage
loans, home equity loans, and home equity lines of credit. |
Investment Activities
The Companys Chief Financial Officer is responsible for implementing its Investment
Policy. The Investment Policy is reviewed annually by management and any changes to the
policy are recommended to and are subject to the approval of the Asset Liability
Committee, and subsequently the Board of Directors. Authority to make investments under
the approved Investment Policy
guidelines is delegated by the Board to the Investment Committee, comprised of the
President and Chief Executive Officer, the Chief Operating Officer, the Executive Vice
President, the Chief Financial Officer, the Treasury Officer and the Vice President of
Information Technology. While general investment strategies are developed and authorized
by the Investment Committee, the execution of specific actions rests with the President,
Chief Operating Officer and Chief Financial Officer who may act jointly or severally. In
addition, two other officers under the supervision of the Chief Financial Officer have
execution authority that is limited to cash management transactions. The Chief Financial
Officer is responsible for ensuring that the guidelines and requirements included in the
Investment Policy are followed and that all securities are considered prudent for
investment.
In addition, the Company utilizes the services of an independent investment advisor to
assist in managing the investment portfolio. The investment advisor is responsible for
maintaining current information regarding securities dealers with whom the Company is
conducting business. A list of appropriate dealers is provided at least annually to the
Board of Directors for approval and authorization, and new securities dealers are
approved prior to the execution of trades. The investment advisor, through its assigned
portfolio manager, must contact the Investment Committee to review all investment
recommendations and transactions and receive approval from the Committee prior to
execution of any transaction.
The Companys Investment Policy requires that all securities transactions be conducted in
a safe and sound manner. Investment decisions must be based upon a thorough analysis of
each security instrument to determine its credit quality and fit within our overall
asset/liability management objectives, its effect on our risk-based capital and the
overall prospects for yield and/or appreciation.
Investment Securities Portfolio: The following table sets forth the carrying values of
our available for sale securities portfolio at the dates indicated.
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
Amortized Cost |
|
|
Fair Value |
|
|
Amortized Cost |
|
|
Fair Value |
|
|
Amortized Cost |
|
|
Fair Value |
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
Available for Sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and government-sponsored enterprise obligations |
|
$ |
7,017 |
|
|
$ |
7,052 |
|
|
$ |
2,031 |
|
|
$ |
2,048 |
|
|
$ |
14,016 |
|
|
$ |
14,036 |
|
Government-sponsored residential mortgage-backed securities |
|
|
72,537 |
|
|
|
75,967 |
|
|
|
117,517 |
|
|
|
120,395 |
|
|
|
96,494 |
|
|
|
97,096 |
|
Corporate debt securities |
|
|
5,879 |
|
|
|
4,656 |
|
|
|
4,831 |
|
|
|
4,887 |
|
|
|
4,068 |
|
|
|
3,863 |
|
Other debt securities |
|
|
722 |
|
|
|
731 |
|
|
|
725 |
|
|
|
739 |
|
|
|
978 |
|
|
|
995 |
|
Marketable equity securities |
|
|
10,509 |
|
|
|
14,345 |
|
|
|
10,437 |
|
|
|
12,940 |
|
|
|
15,744 |
|
|
|
20,141 |
|
Other equity securities |
|
|
|
|
|
|
|
|
|
|
241 |
|
|
|
241 |
|
|
|
241 |
|
|
|
241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available for sale |
|
$ |
96,664 |
|
|
$ |
102,751 |
|
|
$ |
135,782 |
|
|
$ |
141,250 |
|
|
$ |
131,541 |
|
|
$ |
136,372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the year ended December 31, 2009, the Company recorded an other-than-temporary
impairment charge of $65,000 related to one mutual fund. The charge for the impairment
was computed using the closing price of the security as of the date of impairment. The
Companys remaining investment in this mutual fund was $1.4 million with a $55,000
unrealized gain at December 31, 2009. During the year ended December 31, 2009, the
Company recorded an other-than-temporary impairment charge of $297,000 related to five
common stock securities. The charge
for the impairment was computed using the closing price of the securities as of the date
of impairment. The Companys remaining investment in these five common stock securities
was $648,000 with a net $133,000 unrealized loss at December 31, 2009. The Company will
continue to review its entire portfolio for other-than-temporarily impaired securities
with additional attention being given to high risk securities such as the one pooled
trust preferred security that the Company owns.
The Company implemented new accounting guidance during the year (See Note 2 Basis of
Presentation, Principles of Consolidation and Significant Accounting Policies in the
accompanying financial statements) which was applied to existing debt securities held by
the Company as of December 31, 2008. For those debt securities for which the fair value
of the security is less than its amortized cost and the Company does not intend to sell
such security and it is not more likely than not that the Company will be required to
sell such security prior to the recovery of its amortized cost basis less any credit
losses, the credit component of the other-than-temporary impairment losses is recognized
in earnings while the non-credit component is recognized in other comprehensive income,
net of related taxes. As a result, the Company reclassified the non-credit component of
the other-than-temporary impairment loss previously recognized in earnings during 2008
for two corporate debt securities GE Capital Corporation and PRETSL XXVIII. The
reclassification was reflected as a cumulative effect adjustment of $1.0 million ($1.6
million before taxes) that increased retained earnings and increased accumulated other
comprehensive loss. The amortized cost basis of these debt securities for which
other-than-temporary impairment losses were recognized during 2008 were adjusted by the
amount of the cumulative effect adjustment before taxes.
During the year ended December 31, 2008, the Company recorded an other-than-temporary
impairment charge of $11.6 million related to the preferred stock of Freddie Mac and
Fannie Mae as a result of actions taken in the third quarter of 2008 to place those
agencies into conservatorship. The Companys remaining investment in these securities was
$283,000 with no unrealized gain or loss at December 31, 2008. During the year ended
December 31, 2008, the Company recorded an other-than-temporary impairment charge of $1.1
million related to one AAA rated pooled trust preferred security. The charge for the
impairment was based on a Level 3 price for the pooled trust preferred security as of the
date of the impairment. The Companys remaining investment in this pooled trust preferred
security was $1.8 million. During the year ended December 31, 2008, we recorded an
other-than-temporary impairment charge of $587,000 related to one mutual fund. The charge
for the
19
impairment was computed using the closing price of the security as of the date of the
impairment. The Companys remaining investment in this mutual fund was $1.7 million with
no unrealized gain or loss at December 31, 2008. During the year ended December 31, 2008,
we recorded an other-than-temporary impairment charge of $493,000 related to one AAA
rated corporate debt security. The charge for the impairment was computed using the
closing price of the security as of the date of the impairment. The Companys remaining
investment in this corporate debt security was $2.4 million with no unrealized gain or
loss at December 31, 2008. During the year ended December 31, 2008, we recorded an
other-than-temporary impairment charge of $1.1 million related to eleven common stock
securities. The charge for the impairment was computed using the closing prices of the
securities as of the date of the impairment. The Companys remaining investment in these
eleven common stock securities was $1.7 million with no unrealized gain of loss at
December 31, 2008. The Company will continue to review its entire portfolio for other
than temporarily impaired securities with additional attention being given to high risk
securities such as the preferred stock of Freddie Mac and Fannie Mae and the one pooled
trust preferred security that the Company owns.
During the year ended December 31, 2007, the Company recorded an other-than-temporary
impairment charge of $233,000 related to the preferred stock of a U.S.
government-sponsored enterprise. The charge for the impairment was computed using the
closing price of the security as of the date of the impairment. The Companys remaining
investment in this security was $544,000 with no unrealized gain or loss at December 31,
2007.
Consistent with our overall business and asset/liability management strategy, which
focuses on sustaining adequate levels of core earnings, most securities purchased were
classified available for sale at December 31, 2009.
U.S. Government and Government-Sponsored Enterprises: At December 31, 2009, the
Companys U.S. Government and government-sponsored enterprise portfolio totaled $7.1
million, all of which were classified as available for sale. There were no structured
notes or derivatives in the portfolio.
Government-Sponsored Enterprise Residential Mortgage-Backed Securities: The Company
purchases mortgage-backed securities insured or guaranteed by U.S. Government agencies
and government-sponsored entities, including Fannie Mae, Freddie Mac and Ginnie Mae. We
invest in mortgage-backed securities to achieve positive interest rate spreads with
minimal administrative expense, and lower our credit risk as a result of the guarantees
provided by Fannie Mae, Freddie Mac, and Ginnie Mae.
Mortgage-backed securities are created by the pooling of mortgages and the issuance of a
security with an interest rate which is less than the interest rate on the underlying
mortgages. Mortgage-backed securities typically represent a participation interest in a
pool of single-family or multi-family mortgages, although we focus our investments on
mortgage-backed securities backed by one-to-four family mortgages. The issuers of such
securities pool and resell the participation interests in the form of securities to
investors such as the Company and guarantee the payment of principal and interest to
investors. Mortgage-backed securities generally yield less than the loans that underlie
such securities because of the cost of payment guarantees, mortgage servicing and credit
enhancements. However, mortgage-backed securities are usually more liquid than individual
mortgage loans and may be used to collateralize the Companys borrowing obligations.
At December 31, 2009, the carrying value of mortgage-backed securities totaled $95.0
million, or 6.1% of assets and 6.4% of interest-earning assets, $76.0 million of which
were classified as available for sale and $19.0 million of which were classified as held
to maturity. At December 31, 2009, 13% of the mortgage-backed securities were backed by
adjustable rate loans and 87% were backed by fixed rate mortgage loans. The available for
sale mortgage-backed securities portfolio had a book yield of 5.16% at December 31, 2009
and the held to maturity mortgage-backed securities portfolio had a book yield of 5.36%
at December 31, 2009. The estimated fair value of our mortgage-backed securities at
December 31, 2009 was $96.0 million, which is $4.4 million more than the amortized cost
of $91.6 million. Investments in mortgage-backed securities involve a risk that actual
prepayments may differ from estimated prepayments over the life of the security, which
may require adjustments to the amortization of any premium or accretion of any discount
relating to such instruments, thereby changing the net yield on such securities. There is
also reinvestment risk
20
associated with the cash flows from such securities. In addition, the market value of
such securities may be adversely affected by changes in interest rates.
The Companys investment portfolio contained no mortgage-backed securities that are
subject to the risk of sub-prime lending as of December 31, 2009. Though the Company
does not have a direct exposure to sub-prime related assets, the value and related income
of the Companys mortgage-backed securities are sensitive to changes in economic
conditions, including delinquencies and/or defaults on the underlying mortgages. Though
the Company has not been adversely impacted by recent events affecting the mortgage
industry, continuing shifts in the markets perception of credit quality on securities
backed by residential mortgage loans may result in increased volatility of market price
and periods of illiquidity that can negatively impact the valuation of certain securities
held by the Company.
Corporate Bonds: At December 31, 2009, the carrying value of the Companys corporate
bond portfolio totaled $4.7 million, all of which was classified as available for sale.
The corporate bond portfolio reprices quarterly to LIBOR and had a book yield of 0.67% at
December 31, 2009. Although corporate bonds may offer higher yields than U.S. Treasury or
agency securities of comparable duration, corporate bonds also have a higher risk of
default due to possible adverse changes in the credit-worthiness of the issuer. In order
to mitigate this risk, our Investment Policy requires that corporate debt obligation
purchases be rated A or better by a nationally recognized rating agency. A security
that is subsequently downgraded below investment grade will require additional analysis
of credit worthiness and a determination will be made to hold or dispose of the
investment.
Other Debt Securities: These securities consist primarily of obligations issued by
states, counties and municipalities or their agencies and include general obligation
bonds, industrial development revenue bonds and other revenue bonds. The Companys
Investment Policy requires that such state agency or municipal obligation purchases be
rated A or better by a nationally recognized rating agency. A security that is
subsequently downgraded below investment grade will require additional analysis of credit
worthiness and a determination will be made to hold or dispose of the investment. At
December 31, 2009, the Companys state agency and municipal obligations portfolio totaled
$731,000.
Marketable Equity Securities: We currently maintain a diversified equity securities
portfolio. At December 31, 2009, the fair value of the Companys marketable equity
securities portfolio totaled $14.3 million, or 0.9% of total assets, all of which were
classified as available for sale. The portfolio consisted of $11.1 million of diversified
common stock, $0.5 million of preferred stock issued by government-sponsored entities and
$2.7 million of mutual funds. At December 31, 2009, the maximum investment in any single
issuer was $2.6 million. The industries represented by our common stock investments are
diverse and include banking, insurance and financial services, integrated utilities and
various industrial sectors. Our investments in preferred stock consisted of investments
in two government-sponsored enterprises, and the maximum investment in any single issuer
was $287,000. The total equity portfolio will not exceed 100% of the Tier I capital of
the Bank.
Investments in equity securities involve risk as they are not insured or guaranteed
investments and are affected by stock market fluctuations. Such investments are carried
at their market value and can directly affect our net capital position.
Portfolio Maturities and Yields: The composition and maturities of the investment
securities portfolio at December 31, 2009 are summarized in the following table.
Maturities are based on the final contractual payment dates, and do not reflect the
impact of prepayments or early redemptions that may occur. State agency and municipal
obligations as well as common and preferred stock yields have not been adjusted to a
tax-equivalent basis. Certain mortgage-backed securities have interest rates that are
adjustable and will reprice annually within the various maturity ranges. These repricing
schedules are not reflected in the table below. At December 31, 2009, mortgage-backed
securities with adjustable rates totaled $12.6 million.
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
More than Five |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
More than One Year |
|
|
Years through Ten |
|
|
|
|
|
|
|
|
|
One Year or Less |
|
|
through Five Years |
|
|
Years |
|
|
More than Ten Years |
|
|
Total Securities |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
Weighted- |
|
|
|
Fair |
|
|
- Average |
|
|
Fair |
|
|
Average |
|
|
Fair |
|
|
Average |
|
|
Fair |
|
|
Average |
|
|
Fair |
|
|
Average |
|
December 31, 2009 |
|
Value |
|
|
Yield |
|
|
Value |
|
|
Yield |
|
|
Value |
|
|
Yield |
|
|
Value |
|
|
Yield |
|
|
Value |
|
|
Yield |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and
government-sponsored
enterprise
obligations |
|
$ |
2,018 |
|
|
|
0.36 |
% |
|
$ |
5,035 |
|
|
|
3.41 |
% |
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
|
|
% |
|
$ |
7,053 |
|
|
|
2.53 |
% |
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
1,780 |
|
|
|
4.01 |
|
|
|
1,909 |
|
|
|
5.13 |
|
|
|
72,278 |
|
|
|
5.18 |
|
|
|
75,967 |
|
|
|
5.16 |
|
Corporate debt securities |
|
|
|
|
|
|
|
|
|
|
2,971 |
|
|
|
0.55 |
|
|
|
|
|
|
|
|
|
|
|
1,684 |
|
|
|
0.80 |
|
|
|
4,655 |
|
|
|
0.67 |
|
Other debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
731 |
|
|
|
4.49 |
|
|
|
|
|
|
|
|
|
|
|
731 |
|
|
|
4.49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities |
|
$ |
2,018 |
|
|
|
0.36 |
% |
|
$ |
9,786 |
|
|
|
2.65 |
% |
|
$ |
2,640 |
|
|
|
4.95 |
% |
|
$ |
73,962 |
|
|
|
5.08 |
% |
|
|
88,406 |
|
|
|
4.70 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable equity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,345 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available
for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
102,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sources of Funds:
General: Deposits have traditionally been the Companys primary source of funds for use
in lending and investment activities. In addition to deposits, funds are derived from
scheduled loan payments, investment maturities, loan prepayments, retained earnings and income on
earning assets. See Item 7 Managements Discussion and Analysis of Financial
Condition and Results of Operation Liquidity and Capital Resources.
Deposits: A majority of our depositors are persons who work or reside in Hartford, New
London and Tolland Counties and, to a lesser extent, other northeastern Connecticut
communities. We offer a selection of deposit instruments, including checking, savings,
money market savings accounts, negotiable order of withdrawal (NOW) accounts and
fixed-rate time deposits. Deposit account terms vary, with the principal differences
being the minimum balance required, the amount of time the funds must remain on deposit
and the interest rate. The Company had $14.3 million brokered deposits at December 31,
2009, through participation in CDARS reciprocal deposit program. The Company did not
have any borrowings from deposit brokers at December 31, 2009.
Interest rates paid, maturity terms, service fees and withdrawal penalties are
established on a periodic basis. Deposit rates and terms are based primarily on current
operating strategies, market rates, liquidity requirements, rates paid by competitors and
growth goals. To attract and retain deposits, we rely upon personalized customer service,
long-standing relationships and competitive interest rates.
The flow of deposits is influenced significantly by general economic conditions, changes
in money market and other prevailing interest rates and competition. The variety of
deposit accounts that we offer allows us to be competitive in obtaining funds and
responding to changes in consumer demand. Based on historical experience, management
believes our deposits are relatively stable. Expansion of the branch network and the
commercial banking division, as well as deposit promotions and disintermediation from
investment firms due to increasing uncertainty in the financial markets, has provided the
Company with opportunities to attract new deposit relationships.
It is unclear whether the recent growth in deposits will reflect our historical, stable
experience with deposit customers. The ability to attract and maintain money market
accounts and time deposits, and the rates paid on these deposits, has been and will
continue to be significantly affected by market conditions. At December 31, 2009, $491.9
million, or 43.6%, of our deposit accounts were time deposits, of which $359.8 million
had maturities of one year or less.
22
The following table displays a summary of the Companys deposits as of the dates
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
Weighted- Average |
|
|
|
|
|
|
|
|
|
|
Weighted- Average |
|
|
|
|
|
|
|
|
|
|
Weighted- Average |
|
|
|
Balance |
|
|
Percent |
|
|
Rate |
|
|
Balance |
|
|
Percent |
|
|
Rate |
|
|
Balance |
|
|
Percent |
|
|
Rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposit type: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
$ |
150,484 |
|
|
|
13.3 |
% |
|
|
0.00% |
|
|
$ |
116,113 |
|
|
|
11.1 |
% |
|
|
0.00% |
|
|
$ |
99,378 |
|
|
|
10.5 |
% |
|
|
0.00% |
|
NOW accounts |
|
|
108,099 |
|
|
|
9.6 |
|
|
|
0.34 |
|
|
|
86,943 |
|
|
|
8.4 |
|
|
|
0.43 |
|
|
|
85,854 |
|
|
|
9.0 |
|
|
|
0.51 |
|
Regular savings |
|
|
143,601 |
|
|
|
12.7 |
|
|
|
0.30 |
|
|
|
121,527 |
|
|
|
11.7 |
|
|
|
0.60 |
|
|
|
121,800 |
|
|
|
12.8 |
|
|
|
0.60 |
|
Money market and
investment savings |
|
|
234,737 |
|
|
|
20.8 |
|
|
|
0.65 |
|
|
|
188,110 |
|
|
|
18.0 |
|
|
|
1.78 |
|
|
|
120,971 |
|
|
|
12.7 |
|
|
|
3.15 |
|
Club accounts |
|
|
247 |
|
|
|
0.0 |
|
|
|
2.04 |
|
|
|
227 |
|
|
|
0.0 |
|
|
|
2.04 |
|
|
|
216 |
|
|
|
0.0 |
|
|
|
2.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total core
accounts |
|
|
637,168 |
|
|
|
56.4 |
|
|
|
0.13 |
|
|
|
512,920 |
|
|
|
49.2 |
|
|
|
0.87 |
|
|
|
428,219 |
|
|
|
45.0 |
|
|
|
1.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits |
|
|
491,940 |
|
|
|
43.6 |
|
|
|
2.29 |
|
|
|
529,588 |
|
|
|
50.8 |
|
|
|
3.57 |
|
|
|
522,819 |
|
|
|
55.0 |
|
|
|
4.49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
$ |
1,129,108 |
|
|
|
100.0 |
% |
|
|
1.07% |
|
|
$ |
1,042,508 |
|
|
|
100.0 |
% |
|
|
2.24% |
|
|
$ |
951,038 |
|
|
|
100.0 |
% |
|
|
2.99% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009, the aggregate amount of outstanding time deposits in
amounts greater than or equal to $100,000 was $168.5 million. The following table sets
forth the maturity of those time deposits as of December 31, 2009.
|
|
|
|
|
|
|
(In thousands) |
|
Three months or less |
|
$ |
47,890 |
|
Over three months through six months |
|
|
26,563 |
|
Over six months through one year |
|
|
52,149 |
|
Over one year through three years |
|
|
37,537 |
|
Over three years |
|
|
4,338 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
168,477 |
|
|
|
|
|
The following table sets forth the time deposits classified by interest rate as of the
dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
(In thousands) |
|
|
|
|
Interest Rate: |
|
|
|
|
|
|
|
|
|
|
|
|
0.00% - 1.00% |
|
$ |
56,155 |
|
|
$ |
1,987 |
|
|
$ |
1,178 |
|
1.01% - 2.00% |
|
|
204,712 |
|
|
|
632 |
|
|
|
1,002 |
|
2.01% - 3.00% |
|
|
101,412 |
|
|
|
132,356 |
|
|
|
60,161 |
|
3.01% - 4.00% |
|
|
82,360 |
|
|
|
296,257 |
|
|
|
42,480 |
|
4.01% - 5.00% |
|
|
42,259 |
|
|
|
87,475 |
|
|
|
327,519 |
|
5.01% - 6.00% |
|
|
5,042 |
|
|
|
10,881 |
|
|
|
90,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
491,940 |
|
|
$ |
529,588 |
|
|
$ |
522,819 |
|
|
|
|
|
|
|
|
|
|
|
23
The following table sets forth the amounts and maturities of time deposits at December
31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Over Two |
|
|
Over |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of |
|
|
|
|
|
|
|
Over One |
|
|
Years to |
|
|
Three |
|
|
Over Four |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
One Year |
|
|
Year to Two |
|
|
Three |
|
|
Years to |
|
|
Years to |
|
|
|
|
|
|
|
|
|
|
Time Deposit |
|
|
|
and nder |
|
|
Years |
|
|
Years |
|
|
Four Years |
|
|
Five Years |
|
|
Thereafter |
|
|
Total |
|
|
Accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.00% - 1.00% |
|
$ |
56,150 |
|
|
$ |
5 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
56,155 |
|
|
|
11.42 |
% |
1.01% - 2.00% |
|
|
182,145 |
|
|
|
22,475 |
|
|
|
92 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
204,712 |
|
|
|
41.61 |
|
2.01% - 3.00% |
|
|
40,919 |
|
|
|
47,703 |
|
|
|
4,552 |
|
|
|
767 |
|
|
|
7,471 |
|
|
|
|
|
|
|
101,412 |
|
|
|
20.62 |
|
3.01% - 4.00% |
|
|
62,276 |
|
|
|
4,958 |
|
|
|
3,679 |
|
|
|
8,401 |
|
|
|
3,046 |
|
|
|
|
|
|
|
82,360 |
|
|
|
16.74 |
|
4.01% - 5.00% |
|
|
16,238 |
|
|
|
9,242 |
|
|
|
10,306 |
|
|
|
4,435 |
|
|
|
461 |
|
|
|
1,577 |
|
|
|
42,259 |
|
|
|
8.59 |
|
5.01% - 6.00% |
|
|
2,029 |
|
|
|
1,533 |
|
|
|
1,207 |
|
|
|
249 |
|
|
|
|
|
|
|
24 |
|
|
|
5,042 |
|
|
|
1.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
359,757 |
|
|
$ |
85,916 |
|
|
$ |
19,836 |
|
|
$ |
13,852 |
|
|
$ |
10,978 |
|
|
$ |
1,601 |
|
|
$ |
491,940 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the interest-bearing deposit activities for the years
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Beginning balance |
|
$ |
926,395 |
|
|
$ |
851,660 |
|
|
$ |
791,443 |
|
Net increase in deposits before
interest credited |
|
|
32,858 |
|
|
|
49,666 |
|
|
|
33,136 |
|
Interest credited |
|
|
19,371 |
|
|
|
25,069 |
|
|
|
27,081 |
|
|
|
|
|
|
|
|
|
|
|
Net increase in deposits |
|
|
52,229 |
|
|
|
74,735 |
|
|
|
60,217 |
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
978,624 |
|
|
$ |
926,395 |
|
|
$ |
851,660 |
|
|
|
|
|
|
|
|
|
|
|
Borrowed Funds
The Companys borrowings consist solely of advances from and a line of credit with the
FHLBB. At December 31, 2009, we had an available line of credit with the FHLBB in the
amount of $10.0 million and access to additional Federal Home Loan Bank advances of up to
$146.5 million. Internal policies limit borrowings to 30% of total assets, or $471.3
million at December 31, 2009.
Subsidiary Activities
Rockville Bank is currently the only subsidiary of the Company and is incorporated in
Connecticut. Rockville Bank currently has the following subsidiaries all of which are
incorporated in Connecticut: SBR Mortgage Company, SBR Investment Corp., Rockville
Financial Services, Inc., Rockville Commercial Foreclosed Properties, Inc., Rockville
Residential Foreclosed Properties, Inc. and Rockville Bank Mortgage, Inc.
SBR Mortgage Company: Established in December 1998, SBR Mortgage Company operates as
Rockville Banks passive investment company (PIC) which exempts it from Connecticut
income tax under current law.
SBR Investment Corp.: Established in January 1995, SBR Investment Corp. was established
to maintain an ownership interest in Infinex Investments, Inc. (Infinex) a third-party,
non-affiliated registered broker-dealer. Infinex provides broker-dealer services for a
number of banks, to their customers, including the Banks customers through Rockville
Financial Services, Inc.
Rockville Financial Services, Inc.: Established in May 2002, Rockville Financial
Services, Inc. currently offers brokerage and investment advisory services through a
contract with Infinex. In addition, Rockville Financial Services, Inc. offers customers a
range of non-deposit investment products including mutual funds, debt, equity and
government securities, retirement accounts, insurance products and fixed and variable
annuities at all Rockville Bank locations. Rockville
24
Financial Services, Inc. receives a portion of the commissions generated by Infinex from
sales to customers. For the year ended December 31, 2009, Rockville Financial Services,
Inc. received fees of $404,000 through its relationship with Infinex.
Rockville Commercial Foreclosed Properties, Inc., Rockville Residential Foreclosed
Properties, Inc.: Established in May 2009, Rockville Commercial Foreclosed Properties,
Inc. and Rockville Residential Foreclosed Properties, Inc. were established to hold
certain real estate acquired through foreclosures.
Rockville Bank Mortgage, Inc: In September 2009, the Company entered into an agreement to
purchase the assets of Family Choice Mortgage Company. The transaction closed in January
2010 and now operates under the name of Rockville Bank Mortgage Company, Inc. The
acquisition was made to expand the Companys mortgage origination business.
Charitable Foundations:
Rockville Bank Foundation, Inc. (the New Foundation) (formerly known as Rockville Bank
Community Foundation, Inc.): Rockville Bank Foundation, Inc., a private charitable
foundation, was established in May 2005 in connection with the Companys minority stock
issuance. This foundation, which is not a subsidiary of the Company, provides grants to
individuals and not-for-profit organizations within the communities that Rockville Bank
serves. In 2005, the Company contributed $3.9 million in stock to the New Foundation in
connection with the minority stock issuance. No contributions were made to the New
Foundation during 2009. Effective October 3, 2007, Rockville Bank Foundation, Inc., (the
Old Foundation), with assets of approximately $1.2 million merged into the New
Foundation. At December 31, 2009, the New Foundation had assets of approximately $4.1
million, which included Rockville Financial, Inc. stock with a value of $3.4 million at
year-end. The New Foundations Board of Directors consists of two officers of Rockville
Bank, the Chairman of the Board, the Vice Chairman of the Board, and one corporator of
Rockville Financial MHC, Inc.
Bank-Owned Life Insurance
The Company owned $10.1 million Bank-Owned Life Insurance (BOLI) at December 31, 2009.
These policies were purchased in 2003 and 2004 for the purpose of protecting Rockville
Bank against the cost/loss due to the death of key employees and to offset Rockville
Banks future obligations to its employees under various retirement and benefit plans.
FEDERAL AND STATE TAXATION
Federal Taxation
General: Rockville Financial, Inc. and its subsidiaries are subject to federal income
taxation in the same general manner as other corporations, with some exceptions discussed
below. Rockville Financial, Inc. and its subsidiaries tax returns have not been audited
during the past five years. The following discussion of federal taxation is intended only
to summarize certain pertinent federal income tax matters and is not a comprehensive
description of the tax rules applicable to Rockville Financial, Inc.
Method of Accounting: For Federal income tax purposes, Rockville Financial, Inc.
currently reports its income and expenses on the accrual method of accounting and uses a
tax year ending December 31 for filing federal income tax returns.
Bad Debt Reserves: Prior to the Small Business Protection Act of 1996 (the 1996 Act),
Rockville Financial, Inc.s subsidiary, Rockville Bank was permitted to establish a
reserve for bad debts and to make annual additions to the reserve. These additions could,
within specified formula limits, be deducted in arriving at our taxable income. As a
result of the 1996 Act, Rockville Bank was required to use the specific charge-off method
in computing its bad debt deduction beginning with its 1996 federal tax return. Savings
institutions were required to recapture any excess reserves over those established as of
December 31, 1987 (base year reserve). At December 31, 2009, the subsidiary had no
reserves subject to recapture in excess of its base year.
25
Taxable Distributions and Recapture: Prior to the 1996 Act, bad debt reserves created
before January 1, 1988 were subject to recapture into taxable income if Rockville Bank
failed to meet certain thrift asset and definitional tests. Federal legislation has
eliminated these thrift-related recapture rules. At December 31, 2009, our total federal
pre-1988 base year reserve was approximately $1.2 million. However, under current law,
pre-1988 base year reserves remain subject to recapture if Rockville Bank makes certain
non-dividend distributions, repurchases any of its stock, pays dividends in excess of tax
earnings and profits, or ceases to maintain a bank charter.
Alternative Minimum Tax: The Internal Revenue Code of 1986, as amended (the Code),
imposes an alternative minimum tax (AMT) at a rate of 20% on a base of regular taxable
income plus certain tax preferences which we refer to as alternative minimum taxable
income. The AMT is payable to the extent such alternative minimum taxable income is in
excess of an exemption amount and the AMT exceeds the regular income tax. Net operating
losses can offset no more than 90% of alternative minimum taxable income. Certain AMT
payments may be used as credits against regular tax liabilities in future years. The
Company has not been subject to the AMT and has no such amounts available as credits for
carryover.
Net Operating Loss Carryovers: A corporation may carry back net operating losses to the
preceding two taxable years and forward to the succeeding 20 taxable years. At December
31, 2009, Rockville Financial, Inc. had no net operating loss carryforwards for federal
income tax purposes.
Corporate Dividends-Received Deduction: Rockville Financial, Inc. may exclude from its
income 100% of dividends received from Rockville Bank as a member of the same affiliated
group of corporations. To date, Rockville Bank has not paid a dividend and currently
there is no plan to pay one in the near future. The corporate dividends-received
deduction is 80% in the case of dividends received from corporations with which a
corporate recipient does not file a consolidated tax return, and corporations which own
less than 20% of the stock of a corporation distributing a dividend may deduct only 70%
of dividends received or accrued on their behalf.
State Taxation
Connecticut State Taxation: Rockville Financial MHC, Inc., Rockville Financial, Inc. and
its subsidiaries are subject to the Connecticut corporation business tax. The Connecticut
corporation business tax is based on the federal taxable income before net operating loss
and special deductions and makes certain modifications to federal taxable income to
arrive at Connecticut taxable income. Connecticut taxable income is multiplied by the
state tax rate (7.5% for the fiscal year ending December 31, 2009) to arrive at
Connecticut income tax.
In 1998, the State of Connecticut enacted legislation permitting the formation of passive
investment companies by financial institutions. This legislation exempts qualifying
passive investment companies from the Connecticut corporation business tax and excludes
dividends paid from a passive investment company from the taxable income of the parent
financial institution. Rockville Bank established a passive investment company, SBR
Mortgage Company, in December 1998 and eliminated the state income tax expense of
Rockville Bank effective December 31, 1998 through December 31, 2009.
The Company believes it is in compliance with the state PIC requirements and that no
state taxes are due from December 31, 1998 through December 31, 2009; however, the
Company has not been audited by the Department of Revenue Services for such periods. If
the state were to determine that the PIC was not in compliance with statutory
requirements, a material amount of taxes could be due. The State of Connecticut continues
to be under pressure to find new sources of revenue, and therefore could enact
legislation to eliminate the passive investment company exemption. If such legislation
were enacted, Rockville Financial, Inc. would be subject to state income taxes in
Connecticut.
Rockville Financial MHC, Inc. and Rockville Financial, Inc. are not currently under audit
with respect to their income tax returns, and their state tax returns have not been
audited for the past five years.
26
SUPERVISION AND REGULATION
General
Rockville Bank is a Connecticut-chartered stock savings bank and is a wholly-owned
subsidiary of Rockville Financial, Inc., a stock corporation. Fifty-five percent of the
stock of the Company is owned by Rockville Financial MHC, Inc., a Connecticut-chartered
mutual holding company. Rockville Banks deposits are insured up to applicable limits by
the FDIC through the Deposit Insurance Fund (DIF). Rockville Bank is subject to
extensive regulation by the Connecticut Banking Department, as its chartering agency, and
by the Federal Deposit Insurance Corporation, as its deposit insurer. Rockville Bank is
required to file reports with, and is periodically examined by, the FDIC and the
Connecticut Banking Department concerning its activities and financial condition. It must
obtain regulatory approvals prior to entering into certain transactions, such as mergers.
Rockville Financial, Inc., as a bank holding company, is subject to regulation by and is
required to file reports with the Federal Reserve Bank of Boston (FRB). Any change in
such regulations, whether by the Connecticut Banking Department, the FDIC or the FRB,
could have a material adverse impact on Rockville Bank or Rockville Financial, Inc.
Connecticut Banking Laws And Supervision
Connecticut Banking Commissioner: The Commissioner regulates internal organization as
well as the deposit, lending and investment activities of state chartered banks,
including Rockville Bank. The approval of the Commissioner is required for, among other
things, the establishment of branch offices and business combination transactions. The
Commissioner conducts periodic examinations of Connecticut-chartered banks. The FDIC also
regulates many of the areas regulated by the Commissioner, and federal law may limit some
of the authority provided to Connecticut-chartered banks by Connecticut law.
Lending Activities: Connecticut banking laws grant banks broad lending authority. With
certain limited exceptions, any one obligor under this statutory authority may not exceed
10% and 15%, respectively, of a banks capital and allowance for loan losses.
Dividends: The Bank may pay cash dividends out of its net profits. For purposes of this
restriction, net profits represents the remainder of all earnings from current
operations. Further, the total amount of all dividends declared by a savings bank in any
year may not exceed the sum of a banks net profits for the year in question combined
with its retained net profits from the preceding two years. Federal law also prevents an
institution from paying dividends or making other capital distributions that, if by doing
so, would cause it to become undercapitalized. The FDIC may limit a savings banks
ability to pay dividends. No dividends may be paid to the Banks shareholder if such
dividends would reduce stockholders equity below the amount of the liquidation account
required by the Connecticut conversion regulations.
Powers: Connecticut law permits Connecticut banks to sell insurance and fixed and
variable rate annuities if licensed to do so by the Connecticut Insurance Commissioner.
With the prior approval of the Commissioner, Connecticut banks are also authorized to
engage in a broad range of activities related to the business of banking, or that are
financial in nature or that are permitted under the Bank Holding Company Act (BHCA) or
the Home Owners Loan Act (HOLA), both federal statutes, or the regulations promulgated
as a result of these statutes. Connecticut banks are also authorized to engage in any
activity permitted for a national bank or a federal savings association upon filing
notice with the Commissioner unless the Commissioner disapproves the activity.
Assessments: Connecticut banks are required to pay annual assessments to the Connecticut
Banking Department to fund the Departments operations. The general assessments are paid
pro-rata based upon a banks asset size.
Enforcement: Under Connecticut law, the Commissioner has extensive enforcement authority
over Connecticut banks and, under certain circumstances, affiliated parties, insiders,
and agents. The Commissioners enforcement authority includes cease and desist orders,
fines, receivership, conservatorship, removal of officers and directors, emergency
closures, dissolution and liquidation.
27
Federal Regulations
Capital Requirements: Under FDIC regulations, federally insured state-chartered banks
that are not members of the Federal Reserve System (state non-member banks), such as
Rockville Bank, are required to comply with minimum leverage capital requirements. For an
institution determined by the FDIC to not be anticipating or experiencing significant
growth and to be, in general, a strong banking organization, rated composite 1 under the
Uniform Financial Institutions Ranking System established by the Federal Financial
Institutions Examination Council, the minimum capital leverage requirement is a ratio of
Tier I capital to total assets of 3%. For all other institutions, the minimum leverage
capital ratio is 4%. Tier I capital is the sum of common stockholders equity,
non-cumulative perpetual preferred stock (including any related surplus) and minority
investments in certain subsidiaries, less intangible assets (except for certain servicing
rights and credit card relationships) and certain other specified items.
The FDIC regulations require state non-member banks to maintain certain levels of
regulatory capital in relation to regulatory risk-weighted assets. The ratio of
regulatory capital to regulatory risk-weighted assets is referred to as a banks
risk-based capital ratio. Risk-based capital ratios are determined by allocating assets
and specified off-balance sheet items (including recourse obligations, direct credit
substitutes and residual interests) to four risk-weighted categories ranging from 0% to
100%, with higher levels of capital being required for the categories perceived as
representing greater risk. For example, under the FDICs risk-weighting system, cash and
securities backed by the full faith and credit of the U.S. government are given a 0% risk
weight, loans secured by one-to-four family residential properties generally have a 50%
risk weight, and commercial loans have a risk weighting of 100%.
State non-member banks such as Rockville Bank, must maintain a minimum ratio of total
capital to risk-weighted assets of 8%, of which at least one-half must be Tier I capital.
Total capital consists of Tier I capital plus Tier 2 or supplementary capital items,
which include allowances for loan losses in an amount of up to 1.25% of risk-weighted
assets, cumulative preferred stock and certain other capital instruments, and a portion
of the net unrealized gain on equity securities. The includable amount of Tier 2 capital
cannot exceed the amount of the institutions Tier I capital. Banks that engage in
specified levels of trading activities are subject to adjustments in their risk based
capital calculation to ensure the maintenance of sufficient capital to support market
risk.
The Federal Deposit Insurance Corporation Improvement Act (the FDICIA) required each
federal banking agency to revise its risk-based capital standards for insured
institutions to ensure that those standards take adequate account of interest-rate risk,
concentration of credit risk, and the risk of nontraditional activities, as well as to
reflect the actual performance and expected risk of loss on multi-family residential
loans. The FDIC, along with the other federal banking agencies, has adopted a regulation
providing that the agencies will take into account the exposure of a banks capital and
economic value to changes in interest rate risk in assessing a banks capital adequacy.
The FDIC also has authority to establish individual minimum capital requirements in
appropriate cases upon determination that an institutions capital level is, or is likely
to become, inadequate in light of the particular circumstances.
As a bank holding company, Rockville Financial, Inc. is subject to capital adequacy
guidelines for bank holding companies similar to those of the FDIC for state-chartered
banks. Rockville Financial, Inc.s stockholders equity exceeds these requirements.
Prompt Corrective Regulatory Action: Federal law requires, among other things, that
federal bank regulatory authorities take prompt corrective action with respect to banks
that do not meet minimum capital requirements. For these purposes, the law establishes
five capital categories: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized.
The FDIC has adopted regulations to implement the prompt corrective action legislation.
An institution is deemed to be well capitalized if it has a total risk-based capital
ratio of 10% or greater, a Tier I risk-based capital ratio of 6% or greater and a
leverage ratio of 5% or greater. An institution is adequately capitalized if it has a
total risk-based capital ratio of 8% or greater, a Tier I risk-based capital ratio of 4%
or greater, and generally a leverage ratio of 4% or greater. An institution is
undercapitalized if it has a total risk-based capital ratio of less than 8%, a Tier I
risk-
28
based capital ratio of less than 4%, or generally a leverage ratio of less than 4%. An
institution is deemed to be significantly undercapitalized if it has a total risk-based
capital ratio of less than 6%, a Tier I risk-based capital ratio of less than 3%, or a
leverage ratio of less than 3%. An institution is considered to be critically
undercapitalized if it has a ratio of tangible equity (as defined in the regulations) to
total assets that is equal to or less than 2%. As of December 31, 2009, Rockville Bank
was a well capitalized institution.
Undercapitalized banks must adhere to growth, capital distribution (including dividend)
and other limitations and are required to submit a capital restoration plan. A banks
compliance with such a plan is required to be guaranteed by any company that controls the
undercapitalized institution in an amount equal to the lesser of 5% of the institutions
total assets when deemed undercapitalized or the amount necessary to achieve the status
of adequately capitalized. If an undercapitalized bank fails to submit an acceptable
plan, it is treated as if it is significantly undercapitalized. Significantly
undercapitalized banks must comply with one or more of a number of additional
restrictions, including but not limited to an order by the FDIC to sell sufficient voting
stock to become adequately capitalized, requirements to reduce total assets, cease
receipt of deposits from correspondent banks or dismiss directors or officers, and
restrictions on interest rates paid on deposits, compensation of executive officers and
capital distributions by the parent holding company. Critically undercapitalized
institutions are subject to additional measures including, subject to a narrow exception,
the appointment of a receiver or conservator within 270 days after it obtains such
status.
Transactions with Affiliates: Under current federal law, transactions between depository
institutions and their affiliates are governed by Sections 23A and 23B of the Federal
Reserve Act (the FRA). In a holding company context, at a minimum, the parent holding
company of a savings bank and any companies which are controlled by such parent holding
company are affiliates of the savings bank. Generally, Section 23A limits the extent to
which the savings bank or its subsidiaries may engage in covered transactions with any
one affiliate to 10% of such savings banks capital stock and surplus, and contains an
aggregate limit on all such transactions with all affiliates to 20% of capital stock and
surplus. The term covered transaction includes, among other things, the making of loans
or other extensions of credit to an affiliate and the purchase of assets from an
affiliate. Section 23A also establishes specific collateral requirements for loans or
extensions of credit to, or guarantees, acceptances on letters of credit issued on behalf
of an affiliate. Section 23B requires that covered transactions and a broad list of other
specified transactions be on terms substantially the same, or no less favorable, to the
savings bank or its subsidiary as similar transactions with non-affiliates.
Loans to Insiders: Further, Section 22(h) of the FRA restricts an institution with
respect to loans to directors, executive officers, and principal stockholders
(insiders). Under Section 22(h), loans to insiders and their related interests may not
exceed, together with all other outstanding loans to such persons and affiliated
entities, the institutions total capital and surplus. Loans to insiders above specified
amounts must receive the prior approval of the Board of Directors. Further, under Section
22(h), loans to Directors, executive officers and principal stockholders must be made on
terms substantially the same as offered in comparable transactions to other persons,
except that such insiders may receive preferential loans made under a benefit or
compensation program that is widely available to the banks employees and does not give
preference to the insider over the employees. Section 22(g) of the FRA places additional
limitations on loans to executive officers.
Enforcement: The FDIC has extensive enforcement authority over insured savings banks,
including Rockville Bank. This enforcement authority includes, among other things, the
ability to assess civil money penalties, issue cease and desist orders and remove
directors and officers. In general, these enforcement actions may be initiated in
response to violations of laws and regulations and unsafe or unsound practices.
The FDIC has authority under Federal law to appoint a conservator or receiver for an
insured bank under limited circumstances. The FDIC is required, with certain exceptions,
to appoint a receiver or conservator for an insured state non-member bank if that bank
was critically undercapitalized on average during the calendar quarter beginning 270
days after the date on which the institution became critically undercapitalized. The
FDIC may also appoint itself as conservator or receiver for an insured state non-member
institution under specific circumstances on the basis of the institutions
29
financial condition or upon the occurrence of other events, including: (1) insolvency;
(2) substantial dissipation of assets or earnings through violations of law or unsafe or
unsound practices; (3) existence of an unsafe or unsound condition to transact business;
and (4) insufficient capital, or the incurring of losses that will deplete substantially
all of the institutions capital with no reasonable prospect of replenishment without
federal assistance.
Insurance of Deposit Accounts
The FDIC has adopted a risk-based insurance assessment system. The FDIC assigns an
institution to one of three capital categories based on the institutions financial
condition consisting of (1) well capitalized, (2) adequately capitalized or (3)
undercapitalized, and one of three supervisory subcategories within each capital group.
The supervisory subgroup to which an institution is assigned is based on a supervisory
evaluation provided to the FDIC by the institutions primary federal regulator and
information which the FDIC determines to be relevant to the institutions financial
condition and the risk posed to the deposit insurance funds. An institutions assessment
rate depends on the capital category and supervisory category to which it is assigned.
Assessment rates for insurance fund deposits range from 12 basis points for the strongest
institution to 50 basis points for the weakest after a uniform increase of 7 basis points
effective January 1, 2009. DIF members are also required to assist in the repayment of
bonds issued by the Financing Corporation in the late 1980s to recapitalize the Federal
Savings and Loan Insurance Corporation.
In October 2008, the FDIC approved the increased insurance limit of $250,000 per regular
account and is currently effective through 2013, after which the standard coverage limit
will return to $100,000 for all deposit categories except certain retirement accounts
which will continue to be insured up to $250,000. Unlimited deposit insurance coverage
is available through June 30, 2010, for non-interest-bearing transaction accounts at
Rockville Bank, as the Bank is participating in FDICs Temporary Liquidity Guarantee
Program. Additionally, the FDIC approved a plan for rebuilding the DIF after several
bank failures in 2008. The FDIC plan aims to rebuild the DIF within five years; the
first assessment increase was a uniform seven basis points effective January 2009. For
the years ended December 31, 2009, 2008 and 2007, the total FDIC assessments were $2.2
million, $654,000 and $229,000, respectively. In November 2009, the FDIC issued new
regulations requiring insured institutions to prepay their estimated quarterly risk-based
assessments for the fourth quarter of 2009, and for all of 2010, 2011 and 2012. The
prepaid assessments for these periods were collected on December 30, 2009 and totaled
$5.9 million for the Company. The FDIC has exercised its authority to raise assessment
rates for 2009, and may raise insurance premiums in the future. If such action is taken
by the FDIC it could have an adverse effect on the earnings of the Company.
The FDIC may terminate insurance of deposits if it finds that the institution is in an
unsafe or unsound condition to continue operations, has engaged in unsafe or unsound
practices, or has violated any applicable law, regulation, rule, order or condition
imposed by the FDIC. The management of the Company does not know of any practice,
condition or violations that might lead to termination of deposit insurance.
Federal Reserve System
The FRB regulations require depository institutions to maintain non-interest-earning
reserves against their transaction accounts (primarily NOW and regular checking
accounts). The FRB regulations generally require that reserves be maintained against
aggregate transaction accounts. The Company is in compliance with these requirements.
Federal Home Loan Bank System
The Company is a member of the Federal Home Loan Bank of Boston (FHLBB), which is one
of the regional Federal Home Loan Banks composing the Federal Home Loan Bank System. Each
Federal Home Loan Bank serves as a central credit facility primarily for its member
institutions. The Company, as a member of the FHLBB, is required to acquire and hold
shares of capital stock in the FHLBB. While the required percentages of stock ownership
are subject to change by the FHLBB, the Company was in compliance with this requirement
with an investment in FHLBB stock at December 31, 2009 and December 31, 2008. In the
past, the Company had received dividends on its Federal Home Loan Bank stock. For the
years ended December 31, 2008 and 2007,
30
cash dividends from the Federal Home Loan Bank to the Company amounted to approximately
$473,000 and $658,000; respectively. On January 28, 2009, the FHLBB notified its members
of its focus on preserving capital in response to the ongoing market volatility. The
letter outlined that actions taken by the FHLBB included an excess stock repurchase
moratorium, an increased retained earnings target, and suspension of its quarterly
dividend payment. As such, there were no dividends received during the year ended
December 31, 2009. There can be no assurance that such dividends will be reinstated in
the future. Further, there can be no assurance that the impact of recent or future
legislation on the Federal Home Loan Banks also will not cause a decrease in the value of
the Federal Home Loan Bank of Boston stock held by the Company.
Holding Company Regulation
General: As a bank holding company, Rockville Financial, Inc. is subject to
comprehensive regulation and regular examinations by the Federal Reserve Board. The
Federal Reserve Board also has extensive enforcement authority over bank holding
companies, including, among other things, the ability to assess civil money penalties, to
issue cease and desist or removal orders and to require that a holding company divest
subsidiaries (including its bank subsidiaries). In general, enforcement actions may be
initiated for violations of law and regulations and unsafe or unsound practices. Under
Connecticut banking law, no person may acquire beneficial ownership of more than 10% of
any class of voting securities of a Connecticut-chartered bank, or any bank holding
company of such a bank, without prior notification of, and lack of disapproval by, the
Connecticut Banking Commissioner.
Under Federal Reserve Board policy, a bank holding company must serve as a source of
strength for its subsidiary bank. Under this policy, the Federal Reserve Board may
require, and has required in the past, a holding company to contribute additional capital
to an undercapitalized subsidiary bank. As a bank holding company, Rockville Financial,
Inc. must obtain Federal Reserve Board approval before: (i) acquiring, directly or
indirectly, ownership or control of any voting shares of another bank or bank holding
company if, after such acquisition, it would own or control more than 5% of such shares
(unless it already owns or controls the majority of such shares); (ii) acquiring all or
substantially all of the assets of another bank or bank holding company; or (iii) merging
or consolidating with another bank holding company.
The Banking Holding Company Act also prohibits a bank holding company, with certain
exceptions, from acquiring direct or indirect ownership or control of more than 5% of the
voting shares of any company which is not a bank or bank holding company, or from
engaging directly or indirectly in activities other than those of banking, managing or
controlling banks, or providing services for its subsidiaries. The principal exceptions
to these prohibitions involve certain non-bank activities which, by statute or by FRB
regulation or order, have been identified as activities closely related to the business
of banking or managing or controlling banks. The list of activities permitted by the FRB
includes, among other things: (i) operating a savings institution, mortgage company,
finance company, credit card company or factoring company; (ii) performing certain data
processing operations; (iii) providing certain investment and financial advice; (iv)
underwriting and acting as an insurance agent for certain types of credit-related
insurance; (v) leasing property on a full-payout, non-operating basis; (vi) selling money
orders, travelers checks and United States savings bonds; (vii) real estate and personal
property appraising; (viii) providing tax planning and preparation services; (ix)
financing and investing in certain community development activities; and (x) subject to
certain limitations, providing securities brokerage services for customers.
Dividends: The Federal Reserve Board has issued a policy statement on the payment of
cash dividends by bank holding companies, which expresses the Federal Reserve Boards
view that a bank holding company should pay cash dividends only to the extent that the
holding companys net income for the past year is sufficient to cover both the cash
dividends and a rate of earnings retention that is consistent with the holding companys
capital needs, asset quality and overall financial condition. The FRB also indicated that
it would be inappropriate for a company experiencing serious financial problems to borrow
funds to pay dividends. Furthermore, under the prompt corrective action regulations
adopted by the Federal Reserve Board, the Federal Reserve Board may prohibit a bank
holding company from paying any dividends if the holding companys bank subsidiary is
classified as undercapitalized.
31
Bank holding companies are required to give the Federal Reserve Board prior written
notice of any purchase or redemption of its outstanding equity securities if the gross
consideration for the purchase or redemption, when combined with the net consideration
paid for all such purchases or redemptions during the preceding 12 months, is equal to
10% or more of the consolidated net worth of the bank holding company. The Federal
Reserve Board may disapprove such a purchase or redemption if it determines that the
proposal would constitute an unsafe or unsound practice or would violate any law,
regulation, Federal Reserve Board order or any condition imposed by, or written agreement
with, the Federal Reserve Board. This notification requirement does not apply to any
company that meets the well-capitalized standard for commercial banks, is well managed
within the meaning of the Federal Reserve Board regulations and is not subject to any
unresolved supervisory issues.
Financial Modernization: The Gramm-Leach-Bliley Act permits greater affiliation among
banks, securities firms, insurance companies, and other companies under a new type of
financial services company known as a financial holding company. A financial holding
company essentially is a bank holding company with significantly expanded powers.
Financial holding companies are authorized by statute to engage in a number of financial
activities previously impermissible for bank holding companies, including securities
underwriting, dealing and market making; sponsoring mutual funds and investment
companies; insurance underwriting and agency; and merchant banking activities. The act
also permits the Federal Reserve Board and the Treasury Department to authorize
additional activities for financial holding companies if they are financial in nature
or incidental to financial activities. A bank holding company may become a financial
holding company if each of its subsidiary banks is well capitalized, well managed, and
has at least a satisfactory Community Reinvestment Act rating. A financial holding
company must provide notice to the Federal Reserve Board within 30 days after commencing
activities previously determined by statute or by the Federal Reserve Board and
Department of the Treasury to be permissible. Rockville Financial, Inc. has not submitted
notice to the Federal Reserve Board of its intent to be deemed a financial holding
company. However, it is not precluded from submitting a notice in the future should it
wish to engage in activities only permitted to financial holding companies.
Miscellaneous Regulation
Sarbanes-Oxley Act of 2002: The Company is subject to the Sarbanes-Oxley Act of 2002
(the Act), which implements a broad range of corporate governance and accounting
measures for public companies designed to promote honesty and transparency in corporate
America and better protect investors from corporate wrongdoing. In general, the
Sarbanes-Oxley Act mandated important new corporate governance and financial reporting
requirements intended to enhance the accuracy and transparency of public companies
reported financial results. It established new responsibilities for corporate chief
executive officers, chief financial officers and audit committees in the financial
reporting process, and it created a new regulatory body to oversee auditors of public
companies. It backed these requirements with new SEC enforcement tools, increased
criminal penalties for federal mail, wire and securities fraud, and created new criminal
penalties for document and record destruction in connection with federal investigations.
It also increased the opportunity for more private litigation by lengthening the statute
of limitations for securities fraud claims and providing new federal corporate
whistleblower protection.
Section 402 of the Act prohibits the extension of personal loans to directors and
executive officers of issuers (as defined in the Sarbanes-Oxley Act). The prohibition,
however, does not apply to mortgages advanced by an insured depository institution, such
as the Company, that are subject to the insider lending restrictions of Section 22(h) of
the Federal Reserve Act.
The Act also required that the various securities exchanges, including The NASDAQ Global
Select Stock Market, prohibit the listing of the stock of an issuer unless that issuer
complies with various requirements relating to their committees and the independence of
their directors that serve on those committees.
Community Reinvestment Act: Under the Community Reinvestment Act (CRA), as amended as
implemented by FDIC regulations, a bank has a continuing and affirmative obligation,
consistent with its safe and sound operation, to help meet the credit needs of its entire
community, including low and moderate income neighborhoods. The CRA does not establish
specific lending requirements or programs for financial institutions nor does it limit an
institutions discretion to develop the types
32
of products and services that it believes are best suited to its particular community.
The CRA does require the FDIC, in connection with its examination of a bank, to assess
the institutions record of meeting the credit needs of its community and to take such
record into account in its evaluation of certain applications by such institution,
including applications to acquire branches and other financial institutions. The CRA
requires the FDIC to provide a written evaluation of an institutions CRA performance
utilizing a four-tiered descriptive rating system. Rockville Banks latest FDIC CRA
rating was outstanding.
Connecticut has its own statutory counterpart to the CRA which is also applicable to
Rockville Bank. The Connecticut version is generally similar to the CRA but utilizes a
five-tiered descriptive rating system. Connecticut law requires the Commissioner to
consider, but not be limited to, a banks record of performance under Connecticut law in
considering any application by the bank to establish a branch or other deposit-taking
facility, to relocate an office or to merge or consolidate with or acquire the assets and
assume the liabilities of any other banking institution. Rockville Banks most recent
rating under Connecticut law was outstanding.
Consumer Protection And Fair Lending Regulations: The Company is subject to a variety of
federal and Connecticut statutes and regulations that are intended to protect consumers
and prohibit discrimination in the granting of credit. These statutes and regulations
provide for a range of sanctions for non-compliance with their terms, including
imposition of administrative fines and remedial orders, and referral to the Attorney
General for prosecution of a civil action for actual and punitive damages and injunctive
relief. Certain of these statutes authorize private individual and class action lawsuits
and the award of actual, statutory and punitive damages and attorneys fees for certain
types of violations.
The USA Patriot Act: On October 26, 2001, the USA PATRIOT Act was enacted. The Act gives
the federal government new powers to address terrorist threats through enhanced domestic
security measures, expanded surveillance powers, increased information sharing and
broadened anti-money laundering requirements. The Act also requires the federal banking
regulators to take into consideration the effectiveness of controls designed to combat
money-laundering activities in determining whether to approve a merger or other
acquisition application of an FDIC-insured institution. As such, if the Company or the
Bank were to engage in a merger or other acquisition, the effectiveness of its
anti-money-laundering controls would be considered as part of the application process.
The Company has established policies, procedures and systems to comply with the
applicable requirements of the law. The Patriot Act was reauthorized and modified with
the enactment of the USA Patriot Improvement and Reauthorization Act of 2005.
Conversion of Rockville Financial MHC, Inc. to Stock Form: Connecticut law permits
Rockville Financial MHC, Inc. to convert from the mutual form of organization to the
capital stock form of organization (a Conversion Transaction). The Board of Directors
has no current intention or plan to undertake a Conversion Transaction. However, in a
Conversion Transaction a new holding company would be formed as the successor to
Rockville Financial, Inc. (the New Holding Company), Rockville Financial MHC, Inc.s
corporate existence would end, and certain depositors of Rockville Bank would receive the
right to subscribe for additional shares of the New Holding Company. In a Conversion
Transaction, each share of common stock held by stockholders other than Rockville
Financial MHC, Inc. (Minority Stockholders) would be automatically converted into a
number of shares of common stock of the New Holding Company determined pursuant an
exchange ratio that ensures that Minority Stockholders own the same percentage of common
stock in the New Holding Company as they owned in Rockville Financial, Inc. immediately
prior to the Conversion Transaction. The total number of shares held by Minority
Stockholders after a Conversion Transaction also would be increased by any purchases by
Minority Stockholders in the stock offering conducted as part of the Conversion
Transaction.
Dividend Waivers By Rockville Financial MHC, Inc.
It has been the policy of a number of mutual holding companies to waive the receipt of
dividends declared by their savings institution subsidiary. In connection with its
approval of the reorganization however, the Federal Reserve Board imposed certain
conditions on the waiver by Rockville Financial MHC, Inc. of dividends paid on the common
stock by Rockville Financial, Inc. In particular, the Federal Reserve Board required that
Rockville Financial MHC, Inc. obtain the prior
33
approval of the Federal Reserve Board before Rockville Financial MHC, Inc. may waive any
dividends from Rockville Financial, Inc. As of the date hereof, we are not aware that the
Federal Reserve Board has given its approval to any waiver of dividends of any mutual
holding company that has requested such approval.
The Federal Reserve Board approval of the reorganization also required that the amount of
any dividends waived by Rockville Financial MHC, Inc. will not be available for payment
to the public stockholders of Rockville Financial, Inc. (i.e., stockholders other than
Rockville Financial MHC, Inc.) and that such amounts will be excluded from Rockville
Financial, Inc.s capital for purposes of calculating dividends payable to the public
stockholders. Moreover, Rockville Bank is required to maintain the cumulative amount of
dividends waived by Rockville Financial MHC, Inc. in a restricted capital account that
would be added to the liquidation account established in the reorganization. This amount
would not be available for distribution to public stockholders. The restricted capital
account and liquidation account amounts would not be reflected in Rockville Banks
financial statements, but would be considered as a notational or memorandum account of
Rockville Bank. These accounts would be maintained in accordance with the laws, rules,
regulations and policies of the Connecticut Banking Department and the Plan of
Reorganization and Minority Stock Issuance.
Rockville Financial MHC, Inc. has not waived any dividends paid or declared by Rockville
Financial, Inc. and currently does not expect to waive dividends declared by Rockville
Financial, Inc. If Rockville Financial MHC, Inc. decides that it is in its best interest
to waive a particular dividend to be paid by Rockville Financial, Inc. and the Federal
Reserve Board approves such waiver, then Rockville Financial, Inc. would pay such
dividend only to its public stockholders. The amount of the dividend waived by Rockville
Financial MHC, Inc. would be treated in the manner described above. Rockville Financial
MHC, Inc.s decision as to whether or not to waive a particular dividend will depend on a
number of factors, including Rockville Financial MHC, Inc.s capital needs, the
investment alternatives available to Rockville Financial MHC, Inc. as compared to those
available to Rockville Financial, Inc., and the possibility of regulatory approvals. We
cannot guarantee:
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that Rockville Financial MHC, Inc. will waive dividends paid by Rockville
Financial, Inc.; |
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that, if we make application to waive a dividend, the Federal Reserve Board
will approve such dividend waiver request; or |
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what conditions may be imposed by the Federal Reserve Board on any dividend
waiver. |
Federal Securities Laws
Rockville Financial, Inc.s common stock is registered with the Securities and Exchange
Commission under the Securities Exchange Act of 1934 and is subject to the information,
proxy solicitation, insider trading restrictions and other requirements under the
Securities Exchange Act of 1934.
Item 1A. Risk Factors
An investment in Rockville Financial, Inc.s common stock involves risk. The
following discussion highlights risks management believes are material for our company,
but does not necessarily include all risks that we may face. You should carefully
consider the following risk factors and read this Form 10-K in its entirety, when
evaluating whether to make an investment in the Companys common stock.
The impact on the Company and the Bank of recently enacted legislation, in particular the
Emergency Economic Stabilization Act (EESA) of 2008 and its implementing regulations
cannot be predicted at this time.
On October 3, 2008, President Bush signed into law the EESA, which included the
Troubled Asset Relief Program (TARP). The legislation was in response to the financial
crises affecting the banking system and financial markets. EESA is expected to continue
to have a profound effect on the financial services industry. The effect of programs
developed under EESA, including the TARP
and Capital Purchase Program (CPP), could dramatically change the competitive
environment of the Company.
34
The Company is not participating in the CPP, however, the actual impact that EESA and the
implementation of its programs, or any other governmental program will continue to have
on the financial markets and the Company cannot reliably be determined at this time.
Unprecedented disruption and significantly increased risk in the financial markets.
The banking industry experienced unprecedented turmoil in 2008 and 2009 as some of the
worlds major financial institutions collapsed, were seized or were forced into mergers
as the credit markets tightened and the economy headed into a recession and has eroded
confidence in the worlds financial system. As we have seen in the past year, there have
been unintended consequences (i.e. investors are hesitant to invest in the financial
sector for fear of losing their investment) from the measures taken by the Government in
an effort to stabilize the economy. There can be no assurance that the Company will not
be impacted by the current crisis in a way we cannot currently predict or mitigate, but
we will continue to navigate this landscape for the long-term benefit of the Companys
stockholders.
Future changes in interest rates may reduce the companys profits which could have a
negative impact on the value of the companys stock.
The Companys ability to make a profit largely depends on its net interest income, which
could be negatively affected by changes in interest rates. Net interest income is the
difference between: the interest income the Company earns on its interest-earning assets,
such as loans and securities; and the interest expense the Company pays on its
interest-bearing liabilities, such as deposits and borrowings. Increases in interest
rates may decrease loan demand and make it more difficult for borrowers to repay
adjustable rate loans. In addition, as market interest rates rise, the Company will have
competitive pressures to increase the rates it pays on deposits, which will result in a
decrease of our net interest income.
In addition, changes in interest rates can affect the average life of loans and
mortgage-backed and related securities. A reduction in interest rates results in
increased prepayments of loans and mortgage-backed and related securities, as borrowers
refinance their debt in order to reduce their borrowing costs. This creates reinvestment
risk, which is the risk that the Company may not be able to reinvest prepayments at rates
that are comparable to the rates it earned on the prepaid loans or securities.
Continued or further declines in the value of certain investment securities could require
write-downs, which would reduce our earnings.
The unrealized losses on the investment securities portfolio are due to an increase in
credit spreads and liquidity issues in the marketplace. We have concluded these
unrealized losses are temporary in nature since they are not related to the underlying
credit quality of the issuers, and we have the intent and ability to hold these
investments for a time necessary to recover our cost at stated maturity (at which time,
full payment is expected). However, a continued decline in the value of these securities
or other factors could result in an other-than-temporary impairment write-down which
would reduce our earnings.
If dividends paid on our investment in the Federal Home Loan Bank of Boston continue to be
suspended, or if our investment is classified as other-than-temporarily impaired or as
permanently impaired, our earnings and/or stockholders equity could decrease.
The Company owns common stock of the Federal Home Loan Bank of Boston to qualify for
membership in the Federal Home Loan Bank System and to be eligible to borrow funds under
the FHLBBs advance program. There is no market for our FHLBB common stock. The FHLBB
also announced that the dividend paid on its common stock has been suspended
indefinitely. The continued suspension of the dividend will decrease our income. There
can be no assurance that such dividends will be reinstated in the future. Further, there
can be no assurance that the impact of recent or future legislation on the Federal Home
Loan Banks also will not cause a decrease in the value of the Federal Home Loan Bank of
Boston stock held by the Company.
35
In an extreme situation, it is possible that the capitalization of a Federal Home
Loan Bank, including the FHLBB, could be substantially diminished or reduced to zero.
Consequently, we believe that there is a risk that our investment in FHLBB common stock
could be deemed other-than-temporarily impaired at some time in the future, and if this
occurs, it would cause our earnings and stockholders equity to decrease by the after-tax
amount of the impairment charge.
The Company is subject to lending risk and could incur losses in our loan portfolio despite
our underwriting practices.
The Company originates commercial and industrial loans, commercial real estate loans,
consumer loans, and residential mortgage loans primarily within its market area.
Commercial and industrial loans, commercial real estate loans, and consumer loans may
expose a lender to greater credit risk than loans secured by residential real estate
because the collateral securing these loans may not be sold as easily as residential real
estate. In addition, commercial real estate and commercial and industrial loans may also
involve relatively large loan balances to individual borrowers or groups of borrowers.
These loans also have a greater credit risk than residential real estate for the
following reasons:
|
|
|
Commercial and Industrial Loans. Repayment is generally dependent upon the
successful operation of the borrowers business. |
|
|
|
|
Commercial Real Estate Loans. Repayment is dependent on income being
generated in amounts sufficient to cover operating expenses and debt service. |
|
|
|
|
Consumer Loans. Consumer loans are collateralized, if at all, with assets
that may not provide an adequate source of payment of the loan due to
depreciation, damage or loss. |
Due to the ongoing economic recession, the real estate market and local economy are
continuing to deteriorate which has adversely affected the value of the properties
securing the loans or revenues from the borrowers business, thereby increasing the risk
of non-performing loans. The decreases in real estate values have adversely affected the
value of property used as collateral for the Companys commercial real estate loans. The
continued deterioration in the economy may also have a negative effect on the ability of
the Companys commercial borrowers to make timely repayments of their loans, which could
have an adverse impact on the Companys earnings. In addition, if poor economic
conditions continue to result in decreased demand for loans, Company profits may decrease
because its alternative investments may earn less income for the Company than loans.
All of these factors could have a material adverse effect on the Companys financial
condition and results of operations. See further discussion on the commercial loan
portfolio in Loans within Item 7, Managements Discussion and Analysis of Financial
Condition and Results of Operations, of this Annual Report on Form 10-K.
If the Companys allowance for loan losses is not sufficient to cover actual loan losses,
the Companys earnings could decrease.
The Company makes various assumptions and judgments about the collectability of the
Companys loan portfolio, including the creditworthiness of the Companys borrowers and
the value of the real estate and other assets serving as collateral for the repayment of
many of the Companys loans. Recent declines in real estate values may impact the
collateral values that secure the Companys real estate loans. The impact of these
declines on the original appraised values of secured collateral is difficult to estimate
and may not be reflective of the current market values. In determining the amount of the
allowance for loan losses, the Company reviews its loss and delinquency experience on
different loan categories and we evaluate existing economic conditions. If Company
assumptions are incorrect, the Companys allowance for loan losses may not be sufficient
to cover losses inherent in its loan portfolio, resulting in additions to the Companys
allowance which would decrease the Companys net income. Although the Company is unaware
of any specific problems with its loan portfolio that would require any increase in the
Companys allowance at the present time, it may need to be increased further in the
future due to the Companys emphasis on loan growth and on increasing the Companys
portfolio of commercial business and commercial real estate loans.
In addition, bank regulators periodically review the Companys allowance for loan losses
and may require the Company to increase its provision for loan losses or recognize
further loan charge-offs,
36
although the Company is unaware of any reason for them to do so at the present time. Any
increase in the allowance for loan losses or loan charge-offs as required by these
regulatory authorities may have a material adverse effect on the Companys results of
operations and financial condition.
The Companys stock value may be negatively affected by federal regulations restricting
takeovers and the Companys mutual holding company structure.
Federal and Connecticut regulations restricting takeovers: The Change in Bank Control
Act and the Bank Holding Company Act together with Federal Reserve Board regulations
promulgated under those laws, require that a person obtain the consent of the Federal
Reserve Board before attempting to acquire control of a bank holding company. In
addition, the Plan of Reorganization and Minority Stock Issuance pursuant to which
Rockville Financial, Inc. was created contains a provision allowed under Connecticut
Banking regulations requiring the approval of the Connecticut Banking Commissioner prior
to an offer being made to purchase or acquire 10% or more of Rockville Financial, Inc.s
stock through May 20, 2010.
The mutual holding company structure may impede takeovers: Rockville Financial MHC,
Inc., as the majority stockholder of Rockville Financial, Inc., will be able to control
the outcome of most matters presented to stockholders for their approval, including a
proposal to acquire Rockville Financial, Inc. Accordingly, Rockville Financial MHC, Inc.
may prevent the sale of or merger of Rockville Financial, Inc. or its subsidiaries even
if such a transaction were favored by a majority of the public stockholders of Rockville
Financial, Inc. Also, the Certificate of Incorporation of Rockville Financial MHC, Inc.
contains several provisions which make such a transaction more difficult to achieve than
otherwise.
Persons who purchase the Companys stock will own a minority of Rockville Financial, Inc.s
common stock and will not be able to exercise voting control over most matters put to a
vote of stockholders.
Public stockholders own a minority of the outstanding shares of Rockville Financial,
Inc.s common stock. Rockville Financial MHC, Inc. owns a majority of Rockville
Financial, Inc.s common stock and is able to exercise voting control over most matters
put to a vote of stockholders. The same Directors who govern Rockville Financial, Inc.
and Rockville Bank also govern Rockville Financial MHC, Inc. In addition, Rockville
Financial MHC, Inc. may exercise its voting control to prevent a sale or merger
transaction in which stockholders could receive a premium for their shares. In that
regard, Rockville Financial MHC, Inc.s Certificate of Incorporation requires its Board
of Directors to consider the impact of its actions on a variety of constituencies in
making certain business decisions. These constituencies include the depositors, employees
and creditors of Rockville Bank, and the well-being of the communities in which Rockville
Bank conducts business, in addition to Rockville Financial, Inc. stockholders. Thus,
Rockville Financial MHC, Inc. should be expected to act in a manner that furthers the
general interests of those constituencies. The Board of Directors of Rockville Financial,
Inc. is committed to maintaining the Companys independence and approved a resolution on
the matter. The Certificate of Incorporation of Rockville Financial MHC, Inc. requires
super majority votes by its corporators (80%) and Directors (80%) to effect a second
step conversion.
When the Company declares dividends on the Companys common stock, Rockville Financial MHC,
Inc. will be prohibited from waiving the receipt of dividends by current federal reserve
board policy.
Rockville Financial, Inc.s Board of Directors has the authority to declare dividends on
the Companys common stock, subject to statutory and regulatory requirements. When
Rockville Financial, Inc. pays dividends to its stockholders, it also is required to pay
dividends to Rockville Financial MHC, Inc., unless the Company is permitted by the
Federal Reserve Board to waive the receipt of dividends. The Federal Reserve Boards
current position is to not permit a bank holding company to waive dividends declared by
its subsidiary. Accordingly, because dividends will be required to be paid to Rockville
Financial MHC, Inc., along with all other stockholders, the amount of dividends available
for all other stockholders will be less than if Rockville Financial MHC, Inc were
permitted to waive the receipt of dividends.
37
The Company has opened new branches and expect to open additional new branches which nay
incur losses during their initial years of operation as they generate new deposit and loan
portfolios.
Rockville Bank opened new branch offices in Glastonbury in 2005, in South Glastonbury in
2006, in Enfield and East Windsor in 2007, in Colchester in 2008 and in Manchester and
South Windsor in 2009. Rockville Bank intends to continue to examine opportunities to
expand. Losses are expected from these new branches for some time as the expenses
associated with them are largely fixed and are typically greater than the income earned
as the branches build up their customer bases. No assurance can be given as to when, if
ever, new branches will become profitable.
Further implementation of the Companys stock benefit plans will increase company costs,
which sill reduce the Companys income.
As part of the reorganization and stock offering, the Company established an Employee
Stock Ownership Plan (ESOP) for eligible employees 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. The ESOP purchased 437,287 shares of common stock through the initial
public offering, 203,072 shares were purchased in the open market in 2005 and the final
59,300 shares were purchased in the open market in 2006. The Companys subsidiary,
Rockville 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. Annual employee stock ownership plan expenses will be recorded in an amount
equal to the fair value of shares of common stock committed to be released to employees.
If shares of common stock appreciate in value over time, compensation expense relating to
the Employee Stock Ownership Plan will increase.
Stockholders approved establishment of the Rockville Financial, Inc. 2006 Stock Incentive
Plan (the Stock Incentive Plan) at the Companys 2006 Annual Meeting on August 22,
2006. The Stock Incentive Plan allows for the granting of up to 1,224,405 shares, or
13.8%, of the number of shares of common stock held by persons other than Rockville
Financial MHC, Inc. to (i) fund the Stock Incentive Plans recognition and retention plan
and (ii) satisfy the exercise of options under its stock option plan. In the event that a
portion of these shares used to fund awards under the Stock Incentive Plan is obtained
from authorized but un-issued shares or from purchases of shares in the open market, such
awards will decrease our net income per share and stockholders equity per share. The
Company made awards in 2009, 2008, 2007 and 2006 of a portion of the shares allowed under
the Stock Incentive Plan, the expenses of which are reflected in the Companys 2009,
2008, 2007 and 2006 operating results. Additional awards under the Stock Incentive Plan
will be funded either through open market purchases, if permitted, or from the sale of
treasury stock. Such additional awards will reduce our income in the future.
Strong competition within the Companys market area may limit the Companys growth and
profitability.
Competition in the banking and financial services industry is intense. In the Companys
market area, the Company competes with commercial banks, savings institutions, mortgage
brokerage firms, credit unions, finance companies, mutual funds, insurance companies, and
brokerage and investment banking firms operating locally and elsewhere. Many of these
competitors have substantially greater resources and lending limits than the Company has
and offer certain services that the Company does not or cannot provide. The Companys
profitability depends upon the Companys continued ability to successfully compete in its
market area. The greater resources and deposit and loan products offered by the Companys
competitors may limit the Companys ability to increase its interest- earning assets.
Because the Company intends to continue to increase the Companys commercial real estate
and commercial business loan originations, the Company lending risk will increase, and
downturns in the real estate market or local economy could adversely affect the Companys
earnings.
Commercial real estate and commercial business loans generally have more risk than
residential mortgage loans. Because the repayment of commercial real estate and
commercial business loans depends on the successful management and operation of the
borrowers properties or related businesses, repayment of such loans can be affected by
adverse conditions in the real estate market
38
or the local economy. Commercial real estate and commercial business loans may also
involve relatively large loan balances to individual borrowers or groups of related
borrowers. A downturn in the real estate market or the local economy could adversely
impact the value of properties securing the loan or the revenues from the borrowers
business thereby increasing the risk of non-performing loans. As the Companys commercial
real estate and commercial business loan portfolios increase, the corresponding risks and
potential for losses from these loans may also increase.
The trading volume in the Companys stock is less than in larger publicly traded companies
which can cause price volatility, hinder your ability to sell the Companys common stock
and may lower the market price of the stock.
Rockville Financial, Inc. began trading shares of common stock on the NASDAQ Global
Select Stock Market under the symbol RCKB on May 23, 2005. The trading history of the
Companys common stock has been characterized by relatively low trading volume. The value
of a stockholders investment may be subject to sudden decreases due to the volatility of
the price of our common stock which trades on the NASDAQ Global Select Stock Market. The
trading volume experienced since trading began in 2005 has been significantly less than
that typically experienced by larger publicly traded companies. Persons purchasing shares
may not be able to sell their shares when they desire if a liquid trading market does not
continue or sell them at a price equal to or above their initial purchase price. This
limited trading market for our common stock may reduce the market value of the common
stock and make it difficult to buy or sell our shares on short notice.
The Company operates in a highly regulated environment and the Company may be adversely
affected by changes in laws and regulations.
The Company is subject to extensive regulation, supervision and examination by the
Connecticut Banking Commissioner, as our chartering authority, by the Federal Deposit
Insurance Corporation, as insurer of deposits, and by the Federal Reserve Board as
regulator of the Companys two holding companies. Such regulation and supervision govern
the activities in which a financial institution and its holding company may engage and
are intended primarily for the protection of the insurance fund and depositors.
Regulatory authorities have extensive discretion in connection with their supervisory and
enforcement activities, including the imposition of restrictions on the operation of an
institution, the classification of assets by the institution and the adequacy of an
institutions allowance for loan losses. Any change in such regulation and oversight,
whether in the form of regulatory policy, regulations, or legislation, may have a
material impact on the Companys operations.
Item 1B. Unresolved Staff Comments
None.
39
Item 2. Properties
At December 31, 2009 the Companys banking subsidiary, Rockville Bank, operated
through its main office at 25 Park Street, Rockville, Connecticut, 20 banking offices, a
special-need limited services branch and our automated teller machines (ATM), including
thirteen stand-alone ATM facilities. The special-need limited services banking office
opened in September 2009. Of the 22 banking offices, 7 are owned and 15 are leased. Lease
expiration dates of our branches range from 7 months to 18 years with renewal options of
one to twenty years. The Company continues to make lease payments for one stand-alone ATM
closed in January 2010, the lease for which expires in March 2011. The Company
sub-leases part of two of its locations to third parties.
The locations of the Companys banking offices are as follows:
|
|
|
|
|
Office Locations: |
|
Number of Offices: |
|
Hartford County, Connecticut |
|
|
13 |
|
New London County, Connecticut |
|
|
1 |
|
Tolland County, Connecticut |
|
|
8 |
|
|
|
|
|
Total |
|
|
22 |
|
For additional information regarding the Companys premises and equipment and lease
obligations, see Notes 10 and 16 to the Consolidated Financial Statements,
Item 3. Legal Proceedings
We are subject to certain pending and threatened legal actions which arise out of
the normal course of our business, including typical customer claims and counterclaims
arising out of the retail banking and mortgage banking business. We believe that the
resolution of any pending or threatened litigation will not have a material adverse
effect on our consolidated financial condition or results of operations.
Item 4. Removed and Reserved
40
Part II
Item 5. Market For The Registrants Common Equity and Related Stockholder Matters
The Companys Common Stock has traded on the NASDAQ Global Select Stock Market under
the symbol RCKB since the Companys initial public offering closed on May 20, 2005 and
the Common Stock began trading on May 23, 2005. The initial offering price was $10.00 per
share. The following table sets forth the high and low prices (such prices reflect
interdealer prices, without retail markup, markdown or commissions and may not
necessarily represent actual transactions) of the Common Stock for 2009 and 2008, as
reported by NASDAQ Global Select Stock Market.
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock (per share) |
|
|
|
Market Price |
|
|
|
|
|
|
|
|
|
|
|
Dividends |
|
|
|
High |
|
|
Low |
|
|
Declared |
|
2009: |
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
14.46 |
|
|
$ |
6.17 |
|
|
$ |
0.05 |
|
Second Quarter |
|
|
12.50 |
|
|
|
8.44 |
|
|
|
0.05 |
|
Third Quarter |
|
|
14.79 |
|
|
|
9.88 |
|
|
|
0.05 |
|
Fourth Quarter |
|
|
11.68 |
|
|
|
9.68 |
|
|
|
0.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008: |
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
13.98 |
|
|
$ |
9.75 |
|
|
$ |
0.05 |
|
Second Quarter |
|
|
14.50 |
|
|
|
12.51 |
|
|
|
0.05 |
|
Third Quarter |
|
|
17.00 |
|
|
|
12.00 |
|
|
|
0.05 |
|
Fourth Quarter |
|
|
15.50 |
|
|
|
8.80 |
|
|
|
0.05 |
|
On March 8, 2010, the high and low prices of the Common Stock were $12.07 and $11.41,
respectively. As of December 31, 2009, there were 19,554,774 shares of our common stock
outstanding. The Company had 3,943 holders of record as of December 31, 2009, including
Rockville Financial MHC, Inc., which held 10,689,250 shares, Rockville Bank Foundation,
Inc. which held 322,200 shares and the Rockville Bank Employee Stock Ownership Plan,
which held 685,250 shares. The above amount does not reflect the number of persons or
entities who hold their stock in nominee or street name.
Repurchase of Equity Securities During 2009:
No shares were purchased by us during the three months ending December 31, 2009 of equity
securities that are registered by us pursuant to Section 12 of the Securities Act.
Effective January 2008, the Company adopted a plan to repurchase up to 978,400 of our
outstanding shares of common stock on the open market. At December 31, 2009, there were
674,718 shares available to be purchased under this program.
41
(1) Securities Authorized for Issuance Under Equity Compensation Plans
The following table summarizes certain information about the equity compensation plans of
the Company as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number Of Securities |
|
|
|
|
|
|
|
|
|
|
|
Remaining Available |
|
|
|
Number Of |
|
|
|
|
|
|
For Future Issuance |
|
|
|
Securities To Be |
|
|
Weighted-Average |
|
|
Under Equity |
|
|
|
Issued Upon |
|
|
Exercise Price Of |
|
|
Compensation Plans |
|
|
|
Exercise Of |
|
|
Outstanding |
|
|
(Excluding Securities |
|
|
|
Options, Warrants |
|
|
Options, Warrants |
|
|
Reflected In Column |
|
|
|
And Rights |
|
|
And Rights |
|
|
(A)) |
|
Plan Category |
|
(A) |
|
|
(B) |
|
|
(C) |
|
Equity
compensation plans
approved by
security holders |
|
|
445,875 |
|
|
$ |
13.18 |
|
|
|
416,700 |
|
Equity compensation
plans not approved
by security holders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
445,875 |
|
|
$ |
13.18 |
|
|
|
416,700 |
|
|
|
|
|
|
|
|
|
|
|
Dividends:
The Company started paying dividends in 2006. The Company paid dividends of $0.20 per
share to its stockholders in 2009. Declarations of dividends by the Board of Directors,
if any, will depend upon a number of factors, including investment opportunities
available to the Company, capital requirements, regulatory limitations, the Companys
financial condition and results of operations, tax considerations and general economic
conditions. No assurances can be given, however, that dividends will continue to be paid.
Performance Graph:
The following graph compares the cumulative total return on the common stock for the
period beginning May 23, 2005, the date on which Rockville Financial, Inc. common stock
began trading, as reported by the NASDAQ Global Select Stock Market through December 31,
2009, with (i) the cumulative total return on the S&P 500 Index and (ii) the cumulative
total return on the Keefe, Bruyette & Woods, Inc. 50 Index (KBW50) for that period. The
KBW50 is a market-capitalization-weighted bank-stock index used by investors to assess
performance and by banking companies to compare their own total return performance
against an industry peer group. The index is composed of the nations top banking
companies and was introduced in 1993. It includes all money-center and most regional
banks and is designed to be representative of the price performance of the nations
banks.
This graph assumes the investment of $100 on May 23, 2005 in our common stock (at the
initial public offering price of $10.00 per share), the S&P 500 Index and the KBW50 and
assumes that dividends are reinvested.
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S&P 500 |
|
5/23/2005 |
|
|
12/31/2005 |
|
|
12/31/2006 |
|
|
12/31/2007 |
|
|
12/31/2008 |
|
|
12/31/2009 |
|
Price Index |
|
|
1193.86 |
|
|
|
1248.29 |
|
|
|
1418.30 |
|
|
|
1468.36 |
|
|
|
903.25 |
|
|
|
1115.1 |
|
Capital Appreciation |
|
|
|
|
|
|
1.59 |
% |
|
|
6.17 |
% |
|
|
-3.82 |
% |
|
|
-22.56 |
% |
|
|
5.49 |
% |
Unannualized Dividend
Yield |
|
|
|
|
|
|
0.49 |
% |
|
|
0.51 |
% |
|
|
0.50 |
% |
|
|
0.61 |
% |
|
|
0.54 |
% |
Total Quarterly Return |
|
|
|
|
|
|
2.08 |
% |
|
|
6.69 |
% |
|
|
-3.33 |
% |
|
|
-21.94 |
% |
|
|
6.02 |
% |
|
|
|
100.0 |
|
|
|
105.7 |
|
|
|
122.4 |
|
|
|
129.1 |
|
|
|
81.4 |
|
|
|
102.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
KBW50 |
|
|
5/23/2005 |
|
|
|
12/31/2005 |
|
|
|
12/31/2006 |
|
|
|
12/31/2007 |
|
|
|
12/31/2008 |
|
|
|
12/31/2009 |
|
Price Index |
|
|
649.85 |
|
|
|
664.01 |
|
|
|
768.90 |
|
|
|
569.06 |
|
|
|
297.06 |
|
|
|
388.81 |
|
Capital Appreciation |
|
|
|
|
|
|
7.93 |
% |
|
|
6.35 |
% |
|
|
-18.79 |
% |
|
|
-37.89 |
% |
|
|
4 |
% |
Unannualized Dividend
Yield |
|
|
|
|
|
|
0.83 |
% |
|
|
0.84 |
% |
|
|
1.12 |
% |
|
|
0.62 |
% |
|
|
0.45 |
% |
Total Quarterly Return |
|
|
|
|
|
|
8.76 |
% |
|
|
7.19 |
% |
|
|
-17.67 |
% |
|
|
-37.27 |
% |
|
|
4.94 |
% |
|
|
|
100.0 |
|
|
|
104.0 |
|
|
|
124.2 |
|
|
|
95.6 |
|
|
|
52.1 |
|
|
|
69.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RCKB |
|
|
5/23/2005 |
|
|
|
12/31/2005 |
|
|
|
12/31/2006 |
|
|
|
12/31/2007 |
|
|
|
12/31/2008 |
|
|
|
12/31/2009 |
|
Price Index |
|
|
10.48 |
|
|
|
13.05 |
|
|
|
17.85 |
|
|
|
12.20 |
|
|
|
13.97 |
|
|
|
10.50 |
|
Capital Appreciation |
|
|
|
|
|
|
-2.17 |
% |
|
|
23.19 |
% |
|
|
-14.45 |
% |
|
|
-11.30 |
% |
|
|
-2 |
% |
Unannualized Dividend
Yield |
|
|
|
|
|
|
|
|
|
|
0.28 |
% |
|
|
0.28 |
% |
|
|
0.32 |
% |
|
|
0.47 |
% |
Total Quarterly Return |
|
|
|
|
|
|
-2.17 |
% |
|
|
23.46 |
% |
|
|
-14.17 |
% |
|
|
-10.98 |
% |
|
|
-1.86 |
% |
|
|
|
100.0 |
|
|
|
124.5 |
|
|
|
171.2 |
|
|
|
118.3 |
|
|
|
137.5 |
|
|
|
105.3 |
|
|
|
|
* |
|
Note for the S&P 500 Index and KBW 50 Index, the 6/30/2005 Unannualized Dividend
Yield is adjusted to reflect that the stock holding period was not for the duration of
the entire quarter. Unannualized Dividend Yield for the indices is adjusted to reflect
the 5/23/2005-6/30/2005 holding period. |
43
Item 6. Selected Financial Data
Selected financial data for each of the years in the five-year period ended December
31, 2009 are set forth below. The consolidated financial statements and notes thereto as
of December 31, 2009 and 2008 and for each of the years in the three-year period ended
December 31, 2009 are included elsewhere in this Form 10-K.
On May 20, 2005 the Company completed its reorganization from a state-chartered mutual
holding company to a state-chartered mid-tier mutual stock holding company. As such, the
2005 Selected Financial Data includes the effect of the reorganization and minority stock
issuance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
Selected Financial Condition Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,571,134 |
|
|
$ |
1,533,073 |
|
|
$ |
1,327,012 |
|
|
$ |
1,232,836 |
|
|
$ |
1,056,169 |
|
Available for sale securities |
|
|
102,751 |
|
|
|
141,250 |
|
|
|
136,372 |
|
|
|
132,467 |
|
|
|
129,049 |
|
Held to maturity securities |
|
|
19,074 |
|
|
|
24,138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank stock |
|
|
17,007 |
|
|
|
17,007 |
|
|
|
11,168 |
|
|
|
9,836 |
|
|
|
8,498 |
|
Loans receivable, net |
|
|
1,361,019 |
|
|
|
1,291,791 |
|
|
|
1,116,327 |
|
|
|
1,033,355 |
|
|
|
859,700 |
|
Cash and cash equivalents |
|
|
19,307 |
|
|
|
14,901 |
|
|
|
23,998 |
|
|
|
22,381 |
|
|
|
23,611 |
|
Deposits |
|
|
1,129,108 |
|
|
|
1,042,508 |
|
|
|
951,038 |
|
|
|
884,511 |
|
|
|
761,396 |
|
Mortgagors and investors escrow accounts |
|
|
6,385 |
|
|
|
6,077 |
|
|
|
5,568 |
|
|
|
5,320 |
|
|
|
4,794 |
|
Advances from the Federal Home Loan Bank |
|
|
263,802 |
|
|
|
322,882 |
|
|
|
201,741 |
|
|
|
178,110 |
|
|
|
130,867 |
|
Total stockholders equity |
|
|
157,428 |
|
|
|
145,777 |
|
|
|
156,373 |
|
|
|
155,064 |
|
|
|
150,905 |
(1) |
Allowance for loan losses |
|
|
12,539 |
|
|
|
12,553 |
|
|
|
10,620 |
|
|
|
9,827 |
|
|
|
8,675 |
|
Non-performing loans(2) |
|
|
12,046 |
|
|
|
10,435 |
|
|
|
1,569 |
|
|
|
1,493 |
|
|
|
7,177 |
(3) |
|
|
|
(1) |
|
The Company received proceeds of $83.6 million for the sale of
8,357,050 shares of its common stock, representing 43% of the outstanding common
shares at $10.00 per share to eligible account holders and employee benefit plans of
the Bank pursuant to subscription rights as set forth in the Plan. Reorganization
costs of $2.3 million were incurred in conducting the offering and were recorded as
a reduction of the proceeds from the shares sold in the reorganization. |
|
(2) |
|
Non-performing loans include loans for which the Bank does not accrue
interest (non-accrual loans), loans 90 days past due and still accruing interest,
renegotiated loans and loans that have gone through troubled debt restructurings. |
|
(3) |
|
Balance includes a $4.9 million fully guaranteed United States Department
of Agriculture loan that was past due 90 days and still accruing as of December 31,
2005 which was repaid in full in January 2006. |
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
(Dollars in thousands, except per share amounts) |
|
Selected Operating Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and dividend income |
|
$ |
76,062 |
|
|
$ |
77,545 |
|
|
$ |
73,877 |
|
|
$ |
63,952 |
|
|
$ |
48,600 |
|
Interest expense |
|
|
29,775 |
|
|
|
34,946 |
|
|
|
35,577 |
|
|
|
27,649 |
|
|
|
16,514 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
46,287 |
|
|
|
42,599 |
|
|
|
38,300 |
|
|
|
36,303 |
|
|
|
32,086 |
|
Provision for loan losses |
|
|
1,961 |
|
|
|
2,393 |
|
|
|
749 |
|
|
|
1,681 |
|
|
|
2,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for
loan losses |
|
|
44,326 |
|
|
|
40,206 |
|
|
|
37,551 |
|
|
|
34,622 |
|
|
|
29,386 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income (loss) |
|
|
6,972 |
|
|
|
(8,987 |
) |
|
|
5,194 |
|
|
|
4,625 |
|
|
|
4,076 |
|
Non-interest expense |
|
|
36,631 |
|
|
|
33,762 |
|
|
|
30,301 |
|
|
|
29,025 |
|
|
|
24,616 |
|
Contribution to Rockville Bank foundations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,887 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
14,667 |
|
|
|
(2,543 |
) |
|
|
12,444 |
|
|
|
10,222 |
|
|
|
4,959 |
|
Income tax expense (benefit) |
|
|
4,935 |
|
|
|
(956 |
) |
|
|
4,116 |
|
|
|
3,368 |
|
|
|
1,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
9,732 |
|
|
$ |
(1,587 |
) |
|
$ |
8,328 |
|
|
$ |
6,854 |
|
|
$ |
3,426 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 20, 2005 to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
31, 2005 |
|
Net income (loss) (1) |
|
$ |
9,732 |
|
|
$ |
(1,587 |
) |
|
$ |
8,328 |
|
|
$ |
6,854 |
|
|
$ |
1,669 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.53 |
|
|
$ |
(0.09 |
) |
|
$ |
0.44 |
|
|
$ |
0.36 |
|
|
$ |
0.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.53 |
|
|
$ |
(0.09 |
) |
|
$ |
0.44 |
|
|
$ |
0.36 |
|
|
$ |
0.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per share |
|
$ |
0.20 |
|
|
$ |
0.20 |
|
|
$ |
0.16 |
|
|
$ |
0.08 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The earnings for the period prior to the mutual holding company reorganization
which was completed on May 20, 2005, were excluded when calculating the earnings
per share since shares of common stock were not issued until May 20, 2005. |
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or For the Years Ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Selected Financial Ratios and Other Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets |
|
|
0.63 |
% |
|
|
(0.11 |
)% |
|
|
0.65 |
% |
|
|
0.59 |
% |
|
|
0.36 |
% |
Return on average equity |
|
|
6.44 |
|
|
|
(1.03 |
) |
|
|
5.32 |
|
|
|
4.42 |
|
|
|
2.88 |
|
Interest rate spread (1) |
|
|
2.73 |
|
|
|
2.63 |
|
|
|
2.52 |
|
|
|
2.75 |
|
|
|
3.10 |
|
Net interest margin (2) |
|
|
3.10 |
|
|
|
3.09 |
|
|
|
3.13 |
|
|
|
3.30 |
|
|
|
3.49 |
|
Non-interest expense to average assets |
|
|
2.36 |
|
|
|
2.35 |
|
|
|
2.37 |
|
|
|
2.52 |
|
|
|
2.95 |
|
Efficiency ratio (3) |
|
|
68.78 |
|
|
|
100.45 |
|
|
|
69.67 |
|
|
|
70.92 |
|
|
|
78.82 |
|
Efficiency ratio, excluding Foundation contributions |
|
|
68.78 |
|
|
|
100.45 |
|
|
|
69.67 |
|
|
|
70.92 |
|
|
|
68.07 |
|
Average interest-earning assets to average interest-bearing liabilities |
|
|
118.55 |
|
|
|
118.50 |
|
|
|
120.77 |
|
|
|
122.01 |
|
|
|
121.51 |
|
Dividend payout ratio |
|
|
0.38 |
|
|
|
|
|
|
|
0.36 |
|
|
|
0.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital to total assets at end of year |
|
|
10.02 |
|
|
|
9.51 |
|
|
|
11.78 |
|
|
|
12.58 |
|
|
|
14.29 |
|
Average capital to average assets |
|
|
9.74 |
|
|
|
10.76 |
|
|
|
12.27 |
|
|
|
13.47 |
|
|
|
12.35 |
|
Total capital to risk-weighted assets |
|
|
14.07 |
|
|
|
14.16 |
|
|
|
16.60 |
|
|
|
18.00 |
|
|
|
20.44 |
|
Tier I capital to risk-weighted assets |
|
|
12.98 |
|
|
|
12.88 |
|
|
|
15.49 |
|
|
|
16.87 |
|
|
|
19.26 |
|
Tier I capital to total average assets |
|
|
10.15 |
|
|
|
10.43 |
|
|
|
11.74 |
|
|
|
12.75 |
|
|
|
14.34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Quality Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses as a percent of total loans |
|
|
0.91 |
|
|
|
0.96 |
|
|
|
0.94 |
|
|
|
0.94 |
|
|
|
1.00 |
|
Allowance for loan losses as a percent of non-performing loans |
|
|
104.09 |
|
|
|
120.30 |
|
|
|
676.86 |
|
|
|
658.20 |
|
|
|
120.87 |
(4) |
Net charge-offs to average outstanding loans during the period |
|
|
0.16 |
|
|
|
0.04 |
|
|
|
0.00 |
|
|
|
0.05 |
|
|
|
0.05 |
|
Non-performing loans as a percent of total loans |
|
|
0.88 |
|
|
|
0.80 |
|
|
|
0.14 |
|
|
|
0.14 |
|
|
|
0.83 |
|
Non-performing loans as a percent of total assets |
|
|
0.77 |
|
|
|
0.68 |
|
|
|
0.12 |
|
|
|
0.12 |
|
|
|
0.68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of full service offices |
|
|
18 |
|
|
|
17 |
|
|
|
16 |
|
|
|
14 |
|
|
|
13 |
|
Number of limited service offices |
|
|
4 |
|
|
|
4 |
|
|
|
4 |
|
|
|
4 |
|
|
|
4 |
|
|
|
|
(1) |
|
Represents the difference between the weighted-average yield on
average interest-earning assets and the weighted- average cost of interest-bearing
liabilities. |
|
(2) |
|
Represents net interest income as a percent of average
interest-earning assets. |
|
(3) |
|
Represents non-interest expense divided by the sum of net interest
income and non-interest income. |
|
(4) |
|
The ratio at December 31, 2005 is 380.48 when excluding the $4.9
million fully guaranteed United States Department of Agriculture loan that was past
due 90 days and still accruing as of December 31, 2005, which was repaid in full in
January, 2006. |
46
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operation
Overview
Rockville Financial, Inc. (the Company) is a state-chartered mid-tier stock holding
company formed on December 17, 2004. Rockville Financial MHC, Inc. holds fifty-five
percent of the Companys common stock, and the Company holds of all the common stock of
Rockville Bank (the Bank). The Bank provides a full range of banking services to
consumer and commercial customers through its main office in Rockville and twenty one
branches located in Hartford, New London and Tolland Counties in Connecticut. The Banks
deposits are insured under the Deposit Insurance Fund, which is administered by the
Federal Deposit Insurance Corporation.
The Company strives to remain a leader in meeting the financial service needs of the
local community and to provide quality service to the individuals and businesses in the
market areas that it has served since 1858. Rockville Bank is a community-oriented
provider of traditional banking products and services to business organizations and
individuals, offering products such as residential and commercial real estate loans,
consumer loans and a variety of deposit products. Our business philosophy is to remain a
community-oriented franchise and continue to focus on providing superior customer service
to meet the financial needs of the communities in which we operate. Current strategies
include expanding our banking network by pursuing new branch locations and branch
acquisition opportunities in our market area, continuing our residential mortgage lending
activities which comprise a majority of our loan portfolio and expanding our commercial
real estate and commercial business lending activities.
Critical Accounting Policies
The accounting policies followed by the Company and its subsidiaries conform with
accounting principles generally accepted in the United States of America and with general
practices within the banking industry.
The Companys accounting policies are disclosed in Note 2 to the accompanying
Consolidated Financial Statements. Critical accounting policies are defined as those that
are reflective of significant judgments and uncertainties, and could potentially result
in materially different results under different assumptions and conditions. Given the
Company strategy and asset/liability structure, the more critical accounting policies,
which involve the most complex subjective decisions or assessments, relate to allowance
for loan losses, other-than-temporary impairment of investment securities, the valuation
of deferred tax assets, pension and other post-retirement benefits and stock-based
compensation.
See Item 1. Business for further discussion regarding the allowance for loan losses and
other-than-temporary impairment of investment securities.
Net Interest Income Analysis: Average Balance Sheets, Interest and Yields/Costs: The
following tables set forth average balance sheets, average yields and costs, and certain
other information for the periods indicated. No tax-equivalent yield adjustments were
made, as the effect thereof was not material. All average balances are daily average
balances. Non-accrual loans were included in the computation of average balances, but
have been reflected in the table as loans carrying a zero yield. The yields set forth
below include the effect of net deferred costs and premiums that are amortized to
interest income or expense.
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
Interest |
|
|
Yield/ |
|
|
|
|
|
|
Interest and |
|
|
Yield/ |
|
|
Average |
|
|
Interest |
|
|
Yield/ |
|
|
|
Average Balance |
|
|
and Dividends |
|
|
Cost |
|
|
Average Balance |
|
|
Dividends |
|
|
Cost |
|
|
Balance |
|
|
and Dividends |
|
|
Cost |
|
|
|
|
(Dollars in thousands) |
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable, net |
|
$ |
1,333,770 |
|
|
$ |
69,517 |
|
|
|
5.21 |
% |
|
$ |
1,193,416 |
|
|
$ |
68,458 |
|
|
|
5.74 |
% |
|
$ |
1,076,674 |
|
|
$ |
66,995 |
|
|
|
6.22 |
% |
Total investment securities |
|
|
140,494 |
|
|
|
6,544 |
|
|
|
4.66 |
|
|
|
168,913 |
|
|
|
8,580 |
|
|
|
5.08 |
|
|
|
135,059 |
|
|
|
6,122 |
|
|
|
4.53 |
|
Federal Home Loan Bank stock |
|
|
17,007 |
|
|
|
|
|
|
|
0.00 |
|
|
|
13,812 |
|
|
|
473 |
|
|
|
3.42 |
|
|
|
10,248 |
|
|
|
658 |
|
|
|
6.42 |
|
Other earning assets |
|
|
931 |
|
|
|
1 |
|
|
|
0.11 |
|
|
|
2,376 |
|
|
|
34 |
|
|
|
1.43 |
|
|
|
2,443 |
|
|
|
102 |
|
|
|
4.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
|
1,492,202 |
|
|
|
76,062 |
|
|
|
5.10 |
|
|
|
1,378,517 |
|
|
|
77,545 |
|
|
|
5.63 |
|
|
|
1,224,424 |
|
|
|
73,877 |
|
|
|
6.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-earning assets |
|
|
59,606 |
|
|
|
|
|
|
|
|
|
|
|
57,255 |
|
|
|
|
|
|
|
|
|
|
|
52,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,551,808 |
|
|
|
|
|
|
|
|
|
|
$ |
1,435,772 |
|
|
|
|
|
|
|
|
|
|
$ |
1,276,884 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW and money market accounts |
|
$ |
312,439 |
|
|
|
2,494 |
|
|
|
0.80 |
|
|
$ |
249,038 |
|
|
|
4,728 |
|
|
|
1.90 |
|
|
$ |
191,192 |
|
|
|
3,323 |
|
|
|
1.74 |
|
Savings accounts (1) |
|
|
136,981 |
|
|
|
607 |
|
|
|
0.44 |
|
|
|
128,467 |
|
|
|
824 |
|
|
|
0.64 |
|
|
|
130,734 |
|
|
|
835 |
|
|
|
0.64 |
|
Time deposits |
|
|
524,041 |
|
|
|
16,270 |
|
|
|
3.10 |
|
|
|
514,222 |
|
|
|
19,517 |
|
|
|
3.80 |
|
|
|
508,672 |
|
|
|
22,923 |
|
|
|
4.51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits |
|
|
973,461 |
|
|
|
19,371 |
|
|
|
1.99 |
|
|
|
891,727 |
|
|
|
25,069 |
|
|
|
2.81 |
|
|
|
830,598 |
|
|
|
27,081 |
|
|
|
3.26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances from the Federal Home Loan Bank |
|
|
285,258 |
|
|
|
10,404 |
|
|
|
3.65 |
|
|
|
271,545 |
|
|
|
9,877 |
|
|
|
3.64 |
|
|
|
183,219 |
|
|
|
8,496 |
|
|
|
4.64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
1,258,719 |
|
|
|
29,775 |
|
|
|
2.37 |
% |
|
|
1,163,272 |
|
|
|
34,946 |
|
|
|
3.00 |
% |
|
|
1,013,817 |
|
|
|
35,577 |
|
|
|
3.51 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing liabilities |
|
|
142,017 |
|
|
|
|
|
|
|
|
|
|
|
117,983 |
|
|
|
|
|
|
|
|
|
|
|
106,398 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
1,400,736 |
|
|
|
|
|
|
|
|
|
|
|
1,281,255 |
|
|
|
|
|
|
|
|
|
|
|
1,120,215 |
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
151,072 |
|
|
|
|
|
|
|
|
|
|
|
154,517 |
|
|
|
|
|
|
|
|
|
|
|
156,669 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
1,551,808 |
|
|
|
|
|
|
|
|
|
|
$ |
1,435,772 |
|
|
|
|
|
|
|
|
|
|
$ |
1,276,884 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
|
$ |
46,287 |
|
|
|
|
|
|
|
|
|
|
$ |
42,599 |
|
|
|
|
|
|
|
|
|
|
$ |
38,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest rate spread (2) |
|
|
|
|
|
|
|
|
|
|
2.73 |
% |
|
|
|
|
|
|
|
|
|
|
2.63 |
% |
|
|
|
|
|
|
|
|
|
|
2.52 |
% |
Net interest-earning assets (3) |
|
$ |
233,483 |
|
|
|
|
|
|
|
|
|
|
$ |
215,245 |
|
|
|
|
|
|
|
|
|
|
$ |
210,607 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin (4) |
|
|
|
|
|
|
|
|
|
|
3.10 |
% |
|
|
|
|
|
|
|
|
|
|
3.09 |
% |
|
|
|
|
|
|
|
|
|
|
3.13 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average interest-earning assets to average interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
|
118.55 |
% |
|
|
|
|
|
|
|
|
|
|
118.50 |
% |
|
|
|
|
|
|
|
|
|
|
120.77 |
% |
|
|
|
(1) |
|
Includes mortgagors and investors escrow accounts |
|
(2) |
|
Net interest rate spread represents the difference between
the yield on average interest-earning assets and the cost of average
interest-bearing liabilities. |
|
(3) |
|
Net interest-earning assets represent total interest-earning
assets less total interest-bearing liabilities. |
|
(4) |
|
Net interest margin represents the annualized net interest
income divided by average total interest-earning assets. |
Rate Volume Analysis
The following table sets forth the effects of changing rates and volumes on net interest
income for the periods indicated. The rate column shows the effects attributable to
changes in rate (changes in rate multiplied by prior volume). The volume column shows the
effects attributable to changes in volume (changes in volume multiplied by prior rate).
The net column represents the sum of the volume and rate columns. For purposes of this
table, changes attributable to both rate and volume that cannot be segregated have been
allocated proportionately based on the changes due to rate and the changes due to volume.
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
Year Ended |
|
|
|
December 31, 2009 |
|
|
December 31, 2008 |
|
|
|
Compared to |
|
|
Compared to |
|
|
|
December 31, 2008 |
|
|
December 31, 2007 |
|
|
|
Increase (Decrease) |
|
|
|
|
|
|
Increase (Decrease) |
|
|
|
|
|
|
Due To |
|
|
|
|
|
|
Due To |
|
|
|
|
|
|
Volume |
|
|
Rate |
|
|
Net |
|
|
Volume |
|
|
Rate |
|
|
Net |
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
Interest and dividend income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable |
|
$ |
7,637 |
|
|
$ |
(6,578 |
) |
|
$ |
1,059 |
|
|
$ |
5,235 |
|
|
$ |
(3,772 |
) |
|
$ |
1,463 |
|
Securities interest, dividends & income from other assets |
|
|
(1,210 |
) |
|
|
(1,332 |
) |
|
|
(2,542 |
) |
|
|
1,817 |
|
|
|
388 |
|
|
|
2,205 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets |
|
|
6,427 |
|
|
|
(7,910 |
) |
|
|
(1,483 |
) |
|
|
7,052 |
|
|
|
(3,384 |
) |
|
|
3,668 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW and money market accounts |
|
|
991 |
|
|
|
(3,225 |
) |
|
|
(2,234 |
) |
|
|
1,076 |
|
|
|
329 |
|
|
|
1,405 |
|
Savings accounts |
|
|
52 |
|
|
|
(269 |
) |
|
|
(217 |
) |
|
|
(15 |
) |
|
|
4 |
|
|
|
(11 |
) |
Time deposits |
|
|
367 |
|
|
|
(3,614 |
) |
|
|
(3,247 |
) |
|
|
253 |
|
|
|
(3,659 |
) |
|
|
(3,406 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits |
|
|
1,410 |
|
|
|
(7,108 |
) |
|
|
(5,698 |
) |
|
|
1,314 |
|
|
|
(3,326 |
) |
|
|
(2,012 |
) |
FHLBB Advances |
|
|
500 |
|
|
|
27 |
|
|
|
527 |
|
|
|
2,498 |
|
|
|
(1,117 |
) |
|
|
1,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
1,910 |
|
|
|
(7,081 |
) |
|
|
(5,171 |
) |
|
|
3,812 |
|
|
|
(4,443 |
) |
|
|
(631 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net interest income |
|
$ |
4,517 |
|
|
$ |
(829 |
) |
|
$ |
3,688 |
|
|
$ |
3,240 |
|
|
$ |
1,059 |
|
|
$ |
4,299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparison of Operating Results for the Year Ended December 31, 2009 to the Year Ended
December 31, 2008
The Companys results of operations depend primarily on net interest income, which is the
difference between the interest income from earning assets, such as loans and
investments, and the interest expense incurred on interest-bearing liabilities, such as
deposits and borrowings. The Company also generates non-interest income, including
service charges on deposit accounts, mortgage servicing income, bank-owned life insurance
income, safe deposit box rental fees, brokerage fees, gains and losses on investment
securities, insurance commissions and other miscellaneous fees. The Companys
non-interest expense primarily consists of employee compensation and benefits, occupancy,
equipment, and other non-interest expenses. The Companys results of operations are also
affected by its provision for loan losses. The following discussion provides a summary
and comparison of the Companys operating results for the years ended December 31, 2009
and 2008.
Income Statement Summary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
|
|
|
December 31, |
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
$ Change |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Net interest income |
|
$ |
46,287 |
|
|
$ |
42,599 |
|
|
$ |
3,688 |
|
Provision for loan losses |
|
|
1,961 |
|
|
|
2,393 |
|
|
|
(432 |
) |
Non-interest income (loss) |
|
|
6,972 |
|
|
|
(8,987 |
) |
|
|
15,959 |
|
Non-interest expense |
|
|
36,631 |
|
|
|
33,762 |
|
|
|
2,869 |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
14,667 |
|
|
|
(2,543 |
) |
|
|
17,210 |
|
Income tax provision (benefit) |
|
|
4,935 |
|
|
|
(956 |
) |
|
|
5,891 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
9,732 |
|
|
$ |
(1,587 |
) |
|
$ |
11,319 |
|
|
|
|
|
|
|
|
|
|
|
Earnings Summary
The Company had net income of $9.7 million for the year ended December 31, 2009 compared
to a net loss of $1.6 million for 2008. When comparing 2009 to 2008, net interest income
increased $3.7
49
million, or 8.7%, the provision for loan losses decreased by $432,000 or 18.1%, and
non-interest income increased $16.0 million. Non-interest expense increased by $2.9
million, or 8.5%. In 2009, the Company earned $0.53 per share on both a basic and diluted
earnings per share basis. In 2008, the Company lost $0.09 per share on both a basic and
diluted earnings per share basis.
Income before taxes increased $17.2 million to $14.7 million for the year ending December
31, 2009 from a loss before taxes of $2.5 million for the same period in the prior year.
Losses from other-than-temporary impairment of securities were $362,000 for the year
ended December 31, 2009 compared to $14.9 million for the year ended December 31, 2008,
and were the primary change in non-interest income (loss) between both periods. Expenses
relating to the issuance of restricted stock and stock options decreased $905,000 to
$838,000 for the year ended December 31, 2009 when compared to $1.7 million for the year
ended December 31, 2008. The decrease in restricted stock expense from the prior year
reflects the fact that a significant portion of the expense related to the 2008 stock
grant that vests over a four year period was accelerated for retirement-eligible officers
who had constructively earned the award granted.
The increase in net interest income was primarily due to an $18.2 million, or 8.7%,
increase in average net interest-earning assets and a one basis point increase in the net
interest margin. The $432,000 decrease in the provision for loan losses from the prior
year is attributable to a decrease in the provision deemed necessary as a result of our
evaluation of the required allowance amount based upon probable and reasonably estimable
losses in our loan portfolio.
At December 31, 2008, the Company had established an allowance for loan losses of $12.6
million that was disbursed between an allocated $11.9 million to cover embedded risk in
the homogenous pool evaluation, a $473 thousand allocation to $10.1 million portfolio
component that was segregated for specific impairment analysis and a $212 thousand
allocation for imprecision. During 2009, the impaired loans increased from $10.4 million
at December 31, 2008 to a high of $15.4 million at September 30, 2009 with the related
impairment reserve rising from $473 thousand to $1.1 million, respectively. Collateral
values were reassessed under current market conditions and the specific impairment
allocation in relation to the total principal balance of loans tested rose from 4.70% at
December 31, 2008 to 7.20% at September 30, 2009. During this same period, the allocated
reserve for the performing pools fell slightly from $11.9 million at December 31, 2008 to
$11.4 million or from a 92 basis point allocation to an 85 basis point allocation as some
embedded risk was more specifically identified in the rising level of non-performing
loans.
In the last quarter of 2009 charge-offs in excess of $700,000 were recognized on loans
specifically tested for impairment at September 30, 2009. This reduction in conjunction
with transfer of a large sub-division loan into other real estate owned during the
quarter significantly reduced the impaired loan total from $15.4 million at September 30,
2009 to $12.0 million at December 31, 2009 and resulted in a lower specific reserve of
$381,000 at year-end.
At December 31, 2009, allowance for loan losses totaled $12.5 million or 91 basis
points of gross loans as compared with 96 basis points at the prior year end. The
majority of this decrease is attributable to the homogeneous pool allocation that fell
from 92 basis points at December 31, 2008 to 88 basis points at December 31, 2009 as the
level of embedded risk migrated to specific non-performance and the subsequent
recognition of loss by the Company. Management reviewed the factors affecting the
homogenous pool allocations and believes that the allocations accurately reflect loss
exposure based on current portfolio performance and market conditions.
The $16.0 million increase in non-interest income is due to a $14.5 million decrease in
the other-than-temporary impairment of securities, a $555,000 increase in gains on sales
of securities and a $782,000 increase in gains sales of loans. The program to sell fixed
rate residential mortgages in the secondary market began in 2009 driven by historically
low mortgage interest rates.
The $2.9 million increase in non-interest expense is primarily due to an increase of $1.6
million in FDIC assessments for 2009, an increase of $1.4 million in salaries and
employee benefits, and a $277,000 increase in occupancy costs. Expense reductions in
professional fees and marketing expenses of $353,000 and $159,000, respectively, were
realized.
Net Interest Income: Net interest income before the provision for loan loss increased
8.7% to $46.3 million for the year ended December 31, 2009, compared to $42.6 million for
the year ended December 31, 2008. The increase is primarily due to an $18.2 million, or
8.5% increase in average
50
net interest-earning assets and a 1 basis point increase in the net interest margin to
3.10% for the year ended December 31, 2009 from 3.09% for the year ended December 31,
2008. Average net interest-earning assets increased to $233.5 million for the year ended
December 31, 2009 from $215.2 million for the prior year.
Interest and Dividend Income: Interest and dividend income decreased 1.9% to $76.1
million for the year ended December 31, 2009 from $77.5 million for the year ended
December 31, 2008. Interest income on loans receivable increased by 1.5% to $69.5 million
for the year ended December 31, 2009 from $68.5 million for the year ended December 31,
2008 primarily due to an 11.8% increase in average loans receivable which was offset by a
53 basis point decline in the average yield. The average loan yield for the year ended
December 31, 2009 decreased to 5.21% from 5.74% compared to the same period in the prior
year. The prime rate used as an index to re-price various commercial and home equity
adjustable rate loans was 3.25%, unchanged from December 31, 2008. Interest and dividend
income on securities decreased to $6.5 million for the year ended, December 31, 2009 from
$8.6 million for the year ended December 31, 2008 attributable to both a $28.4 million
decrease in average securities and a 42 basis point decrease in the average yield on
securities for the year ended December 31, 2009 compared to the year ended December 31,
2008.
Interest Expense: Interest expense for the year ended December 31, 2009 decreased 14.8%
to $29.8 million from $34.9 million for the year ended December 31, 2008. The decrease in
interest expense for the year ended December 31, 2009 compared to the same period in the
prior year was attributable to a decline in the weighted-average rate paid due to a
falling rate environment offset by an increase in average outstandings . For the year
ended December 31, 2009, average interest-bearing liabilities rose 8.2% to $1.3 billion
from $1.2 billion for the year ended December 31, 2008. The average rate paid on
interest-bearing liabilities for the year ended December 31, 2009 decreased 63 basis
points to 2.37% from 3.00% for the year ended December 31, 2008. For the year ended
December 31, 2009, average core deposits increased to $564.2 million from $474.4 million
for the year ended December 31, 2008.
Provision for Loan Losses: Management recorded a provision of $2.0 million for the year
ended December 31, 2009, a decrease of $432,000 compared to the year ended December 31,
2008 as a result of an evaluation of the loan portfolio and estimated allowance
requirements. A significant portion of the decline was due to a decrease in the level of
growth during the year. In 2008, total loans increased $178 million while in 2009, total
loans increased $70 million. At December 31, 2009, the allowance for loan losses totaled
$12.5 million, or 104.1% of non-performing loans and 0.91% of total loans, compared to
$12.6 million at December 31, 2008, or 120.3% of non-performing loans and 0.96% of total
loans. The Company experienced net loan charge-offs of $2.0 million in 2009 compared with
net charge-offs of $460,000 in 2008. The increase in loan charge-offs is primarily
attributable to 2 borrowers and the recognition of collateral impairment on 2
sub-division projects during 2009.
Non-interest Income (Loss): Sources of non-interest income primarily include banking
service charges on deposit accounts, Infinex brokerage and insurance fees, bank-owned
life insurance and mortgage servicing income. Other-than-temporary impairment of
securities are also included in non-interest income (loss).
Non-interest income (loss) was $7.0 million for the year ended December 31, 2009, and
included other-than-temporary impairment charges of totaling $362,000 compared to $14.9
million of other-than-temporary impairment charges during the year ended December 31,
2008. Other-than-temporary impairment charges in 2009 were comprised of $297,000 related
to five common stocks and $65,000 related to one mutual fund.
Service charges and fees increased $90,000 which is primarily comprised of an increase of
$294,000 in ATM fees due to increased volume in debit card transactions and a $64,000
increase in safe deposit fees. Service charge fee reductions were recorded in Infinex
brokerage and insurance fees of $163,000, overdraft fees of $70,000 and $33,000 in
reverse mortgage commissions and fees.
51
Non-interest Expense: Non-interest expense increased by $2.9 million, or 8.5%, to $36.6
million for the year ended December 31, 2009 from $33.8 million for the year ended
December 31, 2008.
The following table summarizes non-interest expense for the years ended December 31, 2009
and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
$ Change |
|
|
% Change |
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
Salaries and employee benefits |
|
$ |
18,571 |
|
|
$ |
17,150 |
|
|
$ |
1,421 |
|
|
|
8.3 |
% |
Service bureau fees |
|
|
3,872 |
|
|
|
3,808 |
|
|
|
64 |
|
|
|
1.7 |
|
Occupancy and equipment |
|
|
4,380 |
|
|
|
4,103 |
|
|
|
277 |
|
|
|
6.8 |
|
Professional fees |
|
|
1,131 |
|
|
|
1,484 |
|
|
|
(353 |
) |
|
|
(23.8 |
) |
Marketing and promotions |
|
|
1,156 |
|
|
|
1,315 |
|
|
|
(159 |
) |
|
|
(12.1 |
) |
FDIC assessments |
|
|
2,222 |
|
|
|
654 |
|
|
|
1,568 |
|
|
|
239.8 |
|
Other (1) |
|
|
5,299 |
|
|
|
5,248 |
|
|
|
51 |
|
|
|
1.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense |
|
$ |
36,631 |
|
|
$ |
33,762 |
|
|
$ |
2,869 |
|
|
|
8.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes Directors fees and expenses for the years ended
December 31, 2009 and 2008 of $769,000 and $829,000, respectively. |
The $1.4 million increase in salary and employee benefits includes a $1.2 million
increase in pension expense, a $443,000 increase in bonuses, offset by an $821,000
decrease in restricted stock compensation expense. The increase in pension costs was the
result of higher net periodic benefit costs in 2009 than in 2008 as calculated by the
Companys benefit consultant and actuary firm. Bonuses increased in 2009 over 2008 as a
result of the Companys loss incurred in 2008 which reduced the payout in 2008.
The $821,000 decrease in restricted stock expense from the prior year reflects the fact
that a significant portion of the expense related to the 2008 stock grant that vests over
a four year period was accelerated for retirement-eligible officers in 2008 who had
constructively earned the award granted.
Occupancy and equipment expense increased $277,000, or 6.8%, over the prior year due to
increases in rent expense, utilities, property taxes, and depreciation expense on our
buildings and furniture and equipment attributable to the June 2008 opening of the new
Colchester Branch and January 2009 opening of the Manchester Branch.
FDIC assessments expense increased $1.6 million, or 239.8%, in 2009 from 2008 caused by a
special one-time assessment of $700,000, increased assessments resulting from a greater
level of deposits and higher FDIC assessment rates in 2009.
52
Other non-interest expense increased $51,000, or 1.0%, in 2009 over the prior year.
Significant components of other non-interest expense are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
$ Change |
|
|
% Change |
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
Directors fees and expenses |
|
$ |
769 |
|
|
$ |
829 |
|
|
$ |
(60 |
) |
|
|
(7.2 |
)% |
Collections |
|
|
463 |
|
|
|
29 |
|
|
|
434 |
|
|
|
1,518.9 |
|
Off-balance sheet provision |
|
|
(47 |
) |
|
|
230 |
|
|
|
(277 |
) |
|
|
(120.4 |
) |
Telephone |
|
|
174 |
|
|
|
202 |
|
|
|
(28 |
) |
|
|
(13.9 |
) |
Postage |
|
|
395 |
|
|
|
383 |
|
|
|
12 |
|
|
|
3.1 |
|
Courier |
|
|
331 |
|
|
|
344 |
|
|
|
(13 |
) |
|
|
(3.8 |
) |
Dues and subscriptions |
|
|
215 |
|
|
|
228 |
|
|
|
(13 |
) |
|
|
(5.7 |
) |
Service charges |
|
|
188 |
|
|
|
183 |
|
|
|
5 |
|
|
|
2.7 |
|
Printing and forms |
|
|
328 |
|
|
|
431 |
|
|
|
(103 |
) |
|
|
(23.9 |
) |
Other |
|
|
2,483 |
|
|
|
2,389 |
|
|
|
94 |
|
|
|
3.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other non-interest expense |
|
$ |
5,299 |
|
|
$ |
5,248 |
|
|
$ |
51 |
|
|
|
1.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collection expense was $463,000 in 2009 compared to $29,000 in 2008, an increase of
$434,000 due to legal and other third party costs associated with 5 commercial loans prior to
foreclosure. Off-balance sheet provision declined $277,000 compared to 2008 due to a
reduction of off-balance sheet unfunded commitments for 2009 compared to the total
unfunded commitments for 2008. Other expense was $2.5 million in 2009 compared to $2.4
million in 2008, an increase of $94,000, or 3.9%. The increase in 2009 included $60,000
of additional appraisal and credit report expense, $69,000 of OREO expense which there
was none in 2008, and $46,000 of additional mortgage loan servicing expense. These
increases were partially offset by expense reductions in travel expense of $60,000.
Income Tax Expense: Due to net income of $9.7 million in 2009, the Company had income tax
expense of $4.9 million compared to an income tax benefit of $956,000 in 2008. The
effective tax rate was 33.6% and 37.6% for the years ended December 31, 2009 and 2008,
respectively. The effective tax rate differed from the statutory rate of 34% for the
years ended December 31, 2009 and 2008 primarily due to the preferential tax treatment of
the corporate dividends received and non-taxable earnings on bank-owned life insurance
and municipal investments.
Comparison of Operating Results for the Year Ended December 31, 2008 to the Year Ended
December 31, 2007
The Companys results of operations depend primarily on net interest income, which is the
difference between the interest income from earning assets, such as loans and
investments, and the interest expense incurred on interest-bearing liabilities, such as
deposits and other borrowings. The Company also generates non-interest income, including
service charges on deposit accounts, mortgage servicing income, bank-owned life insurance
income, safe deposit box rental fees, brokerage fees, gains and losses on investment
securities, insurance commissions and other miscellaneous fees. The Companys
non-interest expense primarily consists of employee compensation and benefits, occupancy,
equipment, and other non-interest expenses. The Companys results of operations are also
affected by its provision for loan losses. The following discussion provides a summary
and comparison of the Companys operating results for the years ended December 31, 2008
and 2007.
53
Income Statement Summary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
$ Change |
|
|
% Change |
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
Net interest income |
|
$ |
42,599 |
|
|
$ |
38,300 |
|
|
$ |
4,299 |
|
|
|
11.2 |
% |
Provision for loan losses |
|
|
2,393 |
|
|
|
749 |
|
|
|
1,644 |
|
|
|
219.5 |
|
Non-interest (loss) income |
|
|
(8,987 |
) |
|
|
5,194 |
|
|
|
(14,181 |
) |
|
|
(273.0 |
) |
Non-interest expense |
|
|
33,762 |
|
|
|
30,301 |
|
|
|
3,461 |
|
|
|
11.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes |
|
|
(2,543 |
) |
|
|
12,444 |
|
|
|
(14,987 |
) |
|
|
(120.4 |
) |
(Benefit) provision for income taxes |
|
|
(956 |
) |
|
|
4,116 |
|
|
|
(5,072 |
) |
|
|
(123.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(1,587 |
) |
|
$ |
8,328 |
|
|
$ |
(9,915 |
) |
|
|
(119.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General: The Company experienced a net loss of $1.6 million for the year ended December
31, 2008 compared to net income of $8.3 million for 2007. When comparing 2008 to 2007,
net interest income increased $4.3 million, or 11.2%, the provision for loan losses
increased by $1.6 million or 219.5%, and non-interest income decreased $14.2 million, or
273.0%. Other non-interest expense increased by $3.5 million, or 11.4%. In 2008, the
Company lost $0.09 per share on both a basic and diluted earnings per share basis. In
2007, basic and diluted earnings per share were $0.44.
Income before taxes decreased $15.0 million, or 120.4%, to a loss of $2.5 million for the
year ending December 31, 2008 from income before taxes of $12.4 million for the same
period in the prior year. When excluding from both periods losses from
other-than-temporary impairment of securities and expenses relating to the issuance of
restricted stock and stock options, income before taxes would have increased $2.7
million, or 9.1% for the year ending December 31, 2008 when compared to the same period
in the prior year. Losses from other-than-temporary impairment of securities were $14.9
million for the year ended December 31, 2008 compared to $233,000 for the year ended
December 31, 2007, and were the primary change in non-interest (loss) income between both
periods. Expenses relating to the issuance of restricted stock and stock options
increased $791,000 to $1.7 million for the year ended December 31, 2008 when compared to
$952,000 for the year ended December 31, 2007.
The increase in net interest income was primarily due to a $4.6 million, or 2.2%,
increase in average net interest-earning assets offset by a 4 basis point decrease in the
net interest margin. The $1.6 million increase in the provision for loan losses from the
prior year is attributable to an increase in the provision deemed necessary as a result
of our evaluation of the required allowance amount based upon probable and reasonably
estimable losses in our loan portfolio. The increase in the provision reflects the
decline in economic activity within our market area as evidenced by our increase in
non-performing loans to 0.80% of total loans as of December 31, 2008 from 0.14% as of
December 31, 2007.
The $14.2 million decrease in non-interest income is due to a $14.6 million increase in
the other-than-temporary impairment of securities, a $127,000 reduction in gains on sales
of securities partially offset by an increase of $594,000 in service charges and fee
income. The increase in service charges and fees is primarily comprised of a $311,000
increase in insufficient funds charges as a result of the growth in demand deposit
accounts an increase of $205,000 in ATM fees due to increased volume in debit card
transactions and additions made to our ATM network, and an increase in Infinex brokerage
fees of $95,000.
The $3.5 million increase in non-interest expense is primarily due to an increase of $1.1
million in salaries and employee benefits, a $509,000 increase in occupancy costs and a
$437,000 increase in insurance and FDIC assessments. Also contributing to the rise in
non-interest expense was a $253,000 increase in off balance sheet provision for credit
loss, a $447,000 increase in service bureau fees, and a $184,000 increase in marketing
costs.
The $1.1 million increase in salary and employee benefits includes a $1.0 million
increase in salary and a $984,000 increase in restricted stock expense offset by a
$234,000 decrease in bonuses, a $190,000 net increase in the amount of loan fees deferred
under SFAS 91, a $239,000 decrease in stock option compensation and a $115,000 decrease
in ESOP expense when compared to the prior
54
year. The increase in salary costs was primarily due to the growth in the number of
full-time equivalent employees, which increased to 219 as of December 31, 2008 from 205
as of December 31, 2007 as a result of the expansion of branch facilities.
The $984,000 increase in restricted stock expense from the prior year reflects the fact
that a significant portion of the expense related to the 2008 stock grant that vests over
a four year period was accelerated for retirement-eligible officers who had
constructively earned the award granted. The decrease of $239,000 in stock option
compensation expense when compared to the prior year is primarily due to the immediate
recognition of $110,000 of unrecognized stock option compensation expense as a result of
a tender offer consummated in 2007 to purchase 43,100 of options issued in the prior year
to non-executive officers and $232,000 in expense recorded for a new stock option grant
made to executive officers during 2007 as compared to $174,000 of expense recorded for a
new stock option grant made to executive officers in 2008 and $99,000 in stock option
expense for the 2007 and 2006 grants. Stock compensation expense is discussed in detail
in Note 13 in the stock based compensation footnote in the financial statements.
The increase in service bureau fees of $447,000 is primarily due to increases in ATM
servicing, core processing services and wide area network costs, due to increases in fees
charged by the Companys core processor and additions made to our ATM, branch and wide
area network.
Occupancy expense increased $509,000 or 14.2% over the prior year, primarily due to the
expansion of our branch and ATM network. This was attributable to an increase of $185,000
for rent expense, an increase of $159,000 in utilities, maintenance contracts and
janitorial services and an increase of $167,000 in depreciation expense on our buildings
and furniture and equipment. Insurance and FDIC assessments expense increased $437,000
or 121.1% in 2008 from 2007 caused primarily by a $425,000 increase in FDIC assessments.
Increased assessments resulted from a greater level of deposits coupled with a higher
FDIC assessment rate.
Other expense increased $882,000 in 2008 to $5.1 million from $4.2 million in 2007. The
increase in 2008 included increases of $253,000 in off balance sheet provision for credit
loss expense, $139,000 in Human Resource expense, $109,000 in annual meeting expense,
$83,000 in Directors option expense, $80,000 in sales training expense and $55,000 in
other bank service charge expense. Directors deferred compensation expense declined
$62,000 in 2008.
Net Interest Income: Net interest income before the provision for loan loss increased
11.2% to $42.6 million for the year ended December 31, 2008, compared to $38.3 million
for the year ended December 31, 2007. The increase is primarily due to a $4.6 million, or
2.2% increase in average net interest-earning assets offset by a 4 basis point decrease
in the net interest margin. Our net interest margin decreased to 3.09% for the year ended
December 31, 2008 from 3.13% for the year ended December 31, 2007. Average net
interest-earning assets increased to $215.2 million for the year ended December 31, 2008
from $210.6 million for the prior year.
Interest and Dividend Income: Interest and dividend income increased 5.0% to $77.5
million for the year ended December 31, 2008 from $73.9 million for the year ended
December 31, 2007. Interest income on loans receivable increased by 2.2% to $68.5 million
for the year ended December 31, 2008 from $67.0 million for the year ended December 31,
2007 primarily due to a 10.8% increase in average loans receivable which was offset by a
48 basis point decline in the average yield. The average loan yield for the year ended
December 31, 2008 decreased to 5.74% from 6.22% compared to the same period in the prior
year. The prime rate used as an index to re-price various commercial and home equity
adjustable rate loans decreased 400 basis points during the year to 3.25% at December 31,
2008 from 7.25% at December 31, 2007. Interest and dividend income on available for sale
securities increased to $8.6 million for the year ended December 31, 2008 from $6.1
million for the year ended December 31, 2007 attributable to both a 25.1% increase in
average available for sale securities and a 55 basis point increase in the average yield
on available for sale investment securities for the year ended December 31, 2008 compared
to the year ended December 31, 2007.
Interest Expense: Interest expense for the year ended December 31, 2008 decreased 1.8% to
$34.9 million from $35.6 million for the year ended December 31, 2007. The decrease in
interest expense for the year ended December 31, 2008 compared to the same period in the
prior year was attributable to an increase in average outstandings offset by a decline in
the weighted average rate paid due to a
55
falling rate environment. For the year ended December 31, 2008, average interest-bearing
liabilities rose 14.7% to $1.2 billion from $1.0 billion for the year ended December 31,
2007. The average rate paid on interest-bearing liabilities for the year ended December
31, 2008 decreased 51 basis points to 3.00% from 3.51% for the year ended December 31,
2007. For the year ended December 31, 2008, average core deposits increased to $474.4
million from $408.7 million for the year ended December 31, 2007.
Provision for Loan Losses: Management recorded a provision of $2.4 million for the year
ended December 31, 2008, an increase of $1.6 million compared to the year ended December
31, 2007 as a result of an evaluation of the loan portfolio and estimated allowance
requirements. At December 31, 2008, the allowance for loan losses totaled $12.6 million,
or 120.3% of non-performing loans and 0.96% of total loans, compared to $10.6 million at
December 31, 2007, or 676.9% of non-performing loans and 0.94% of total loans. The
Company experienced net loan charge-offs of $460,000 in 2008 compared with net recoveries
of $44,000 in 2007. The increase in loan charge-offs is attributable to the decline in
our current economic environment.
Non-interest Income: Sources of non-interest income primarily include banking service
charges on deposit accounts, Infinex brokerage and insurance fees, bank-owned life
insurance and mortgage servicing income. Other-than-temporary impairment of securities
are also included in non-interest income.
Non-interest loss was $9.0 million for the year ended December 31, 2008, and included
other than temporary impairment of securities totaling $14.9 million compared to $5.2
million non-interest income earned during the year ended December 31, 2007.
Other-than-temporary impairment charges included $11.6 million related to preferred stock
of Freddie Mac and Fannie Mae, $1.1 million related to a AAA rated pooled trust preferred
security, $1.1 million related to eleven common stocks, $587,000 related to one mutual
fund and $493,000 related to one AAA rated corporate debt security.
Service charges and fees increased $594,000 which is primarily comprised of an increase
of $205,000 in ATM fees due to increased volume in debit card transactions and additions
made to our ATM network, a $311,000 increase in insufficient funds charges as a result of
the growth in demand deposit accounts and a $95,000 increase in Infinex brokerage fees.
Non-interest Expense: Non-interest expense increased by $3.5 million, or 11.4%, to $33.8
million for the year ended December 31, 2008 from $30.3 million for the year ended
December 31, 2007.
The following table summarizes non-interest expense for the years ended December 31, 2008
and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
$ Change |
|
|
% Change |
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
Salaries and employee benefits |
|
$ |
17,150 |
|
|
$ |
16,082 |
|
|
$ |
1,068 |
|
|
|
6.6 |
% |
Service bureau fees |
|
|
3,808 |
|
|
|
3,361 |
|
|
|
447 |
|
|
|
13.3 |
|
Occupancy and equipment |
|
|
4,103 |
|
|
|
3,594 |
|
|
|
509 |
|
|
|
14.2 |
|
Professional fees |
|
|
1,484 |
|
|
|
1,550 |
|
|
|
(66 |
) |
|
|
(4.3 |
) |
Marketing and promotions |
|
|
1,315 |
|
|
|
1,131 |
|
|
|
184 |
|
|
|
16.3 |
|
Insurance and FDIC assessments |
|
|
798 |
|
|
|
361 |
|
|
|
437 |
|
|
|
121.1 |
|
Other (1) |
|
|
5,104 |
|
|
|
4,222 |
|
|
|
882 |
|
|
|
20.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense |
|
$ |
33,762 |
|
|
$ |
30,301 |
|
|
$ |
3,461 |
|
|
|
11.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes Directors fees and expenses for the years ended December 31, 2008 and
2007 of $829,000 and $755,000, respectively. |
The $1.1 million increase in salary and employee benefits includes a $1.0 million
increase in salary costs and a $984,000 increase in restricted stock compensation expense
offset by a $234,000 decrease in bonuses, a $190,000 net increase in the amount of loan
fees deferred under SFAS 91, a $239,000 decrease in stock option compensation and a
$115,000 decrease in ESOP expense, when
56
compared to the prior year. The increase in salary costs was primarily due to the growth
in the number of full-time equivalent employees, which increased to 219 as of December
31, 2008 from 205 as of December 31, 2007 as a result of the expansion of branch
facilities.
The $984,000 increase in restricted stock expense from the prior year reflects the fact
that a significant portion of the expense related to the 2008 stock grant that vests over
a four year period was accelerated for retirement-eligible officers who had
constructively earned the award granted. The decrease of $239,000 in stock option
compensation expense when compared to the prior year is primarily due to the immediate
recognition of $110,000 of unrecognized stock option compensation expense as a result of
a tender offer consummated in 2007 to purchase 43,100 of options issued in the prior year
to non-executive officers and $232,000 in expense recorded for a new stock option grant
made to executive officers during 2007, as compared to $174,000 of expense recorded for a
new stock grant made to executive officers in 2008 and $99,000 in stock option expense
for the 2007 and 2006 grants. Stock compensation expense is discussed in detail in Note
14 in the Stock Based Compensation footnote in the financial statements.
The increase in service bureau fees of $447,000 is primarily due to increases in ATM
servicing, core processing services and wide area network costs, due to increases in fees
charged by the Companys core processor and additions made to our ATM, branch and wide
area network.
Occupancy and equipment expense increased $509,000, or 14.2%, over the prior year
primarily due to the expansion of our branch and ATM network. This was attributable to an
increase of $185,000 for rent expense, an increase of $159,000 in utilities, maintenance
contracts and janitorial services and an increase of $167,000 in depreciation expense on
our buildings and furniture and equipment. In June 2008, the new Colchester Branch opened
contributing the above expense increases.
Insurance and FDIC assessments expense increased $437,000, or 121.1%, in 2008 from 2007
caused primarily by a $425,000 increase in FDIC assessments. Increased assessments
resulted from a greater level of deposits coupled with a higher FDIC assessment rate.
Other expense increased $882,000, or 20.9%, in 2008 over the prior year. Significant
components of other non-interest expense are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
$ Change |
|
|
% Change |
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
Directors fees and expenses |
|
$ |
829 |
|
|
$ |
755 |
|
|
$ |
74 |
|
|
|
9.8 |
% |
Telephone |
|
|
202 |
|
|
|
217 |
|
|
|
(15 |
) |
|
|
(6.9 |
) |
Postage |
|
|
383 |
|
|
|
369 |
|
|
|
14 |
|
|
|
3.8 |
|
Courier |
|
|
344 |
|
|
|
302 |
|
|
|
42 |
|
|
|
13.9 |
|
Dues and subscriptions |
|
|
228 |
|
|
|
235 |
|
|
|
(7 |
) |
|
|
(3.0 |
) |
Service charges |
|
|
183 |
|
|
|
128 |
|
|
|
55 |
|
|
|
43.0 |
|
Printing and forms |
|
|
431 |
|
|
|
392 |
|
|
|
39 |
|
|
|
9.9 |
|
Other |
|
|
2,504 |
|
|
|
1,824 |
|
|
|
680 |
|
|
|
37.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other non-interest expense |
|
$ |
5,104 |
|
|
$ |
4,222 |
|
|
$ |
882 |
|
|
|
20.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense was $2.5 million in 2008 compared to $1.8 million in 2007, an increase of
$680,000, or 37.3%. The increase in 2008 included $253,000 in off balance sheet provision
for credit loss expense $139,000 in Human Resource expense, $109,000 in annual meeting
expense, and $80,000 in sales training expense which was partially offset by a reduction
of $62,000 in Directors deferred compensation expense.
Income Tax Expense: Due to the net loss in 2008, the Company received a tax benefit of
$956,000 compared to income tax expense of $4.1 million in 2007. The effective tax rate
was 37.6% and 33.1% for the years ended December 31, 2008 and 2007, respectively. The
effective tax rate differed from the statutory rate of 34% for the years ended December
31, 2008 and 2007 primarily due to the preferential tax treatment of the corporate
dividends received, non-taxable earnings on bank-owned life insurance and municipal
investments offset by the non-deductibility of the excess book basis of ESOP expense that
is recorded at the average market price for book purposes and is only deductible
57
at cost basis for tax purposes and the non-deductibility of $715,000 of employee benefits
expense that exceeded the Federal compensation limit and the impact of the compensation
deduction limits.
Comparison of Financial Condition at December 31, 2009 and December 31, 2008
Summary: The Companys total assets increased $38.1 million, or 2.5%, to $1.6 billion at
December 31, 2009, as compared to $1.5 billion at December 31, 2008, primarily due to a
$69.2 million, or 5.4%, increase in net loans which were funded primarily with the
proceeds received from additional deposits of $86.6 million, or 8.3%, which was offset by
a $59.1 million reduction of Federal Home Loan Bank advances at December 31, 2009, a
18.3% decrease over December 31, 2008. Total capital increased $11.7 million, or 8.0%,
to $157.4 million at December 31, 2009 from $145.8 million at December 31, 2008.
Securities: Available for sale investment securities decreased $38.5 million or 27.3% to
$102.8 million at December 31, 2009 from $141.3 million at December 31, 2008. The Company
started purchasing held to maturity securities in 2008 consisting of long term
mortgage-backed securities and at December 31, 2009 had $19.1million in securities held
to maturity compared to $24.1 million at December 31, 2008. At December 31, 2009, the net
unrealized gain on investment securities available for sale was $4.0 million, net of
taxes, compared to $3.6 million as of December 31, 2008. The low interest rate
environment during 2009 had a negative effect on the fair value of the Companys
LIBOR-based variable rate debt securities during the period. That impact was offset by
increased unrealized gains on marketable equity securities.
Lending Activities: Net loans receivable increased $69.2 million, or 5.4%, to $1.4
billion at December 31, 2009 from $1.3 billion at December 31, 2008 primarily due to
increases in commercial real estate loans and residential mortgages.
Residential real estate loans increased $8.8 million, or 1.2%, to $754.8 million at
December 31, 2009. This increase in loans reflected continued demand for loans in a
favorable interest rate environment and a no-closing costs loan program for refinanced
residential loans offset by the sales of $44.0 million of fixed rate residential loans in
the secondary market to Freddie Mac. Commercial real estate loans increased $74.6
million, or 21.2%, to $426.0 million at December 31, 2009. This increase in commercial
real estate loans reflects the expansion of existing borrowing relationships and the
continued success of the regional commercial real estate program.
The allowance for loan losses decreased $14,000 to $12.5 million at December 31, 2009
from $12.6 million at December 31, 2008. The decrease in the allowance for loan losses
resulted from a $2.0 million provision for loan losses for the year ended December 31,
2009 which equaled net charge- offs. The allowance was deemed adequate based upon
managements estimate of probable estimated loan losses inherent in the loan portfolio
and the growth of the loan portfolio. At December 31, 2009, the allowance for loan losses
represented 0.91% of total loans and 104.1% of non-performing loans, compared to 0.96% of
total loans and 120.3% of non-performing loans as of December 31, 2008.
Deposits: Deposits increased $86.6 million, or 8.3%, to $1.1 billion at December 31,2009
from $1.0 billion at December 31, 2008. The growth was principally attributable to a
$46.6 million increase in money market and investment savings. Demand deposits grew $34.4
million to $150.5 million at December 31, 2009, up 29.6% over the prior year end. NOW
accounts grew $21.2 million to $108.1 million, at December 31, 2009, up 24.3% from the
prior year end. Regular savings accounts increased $22.1 million to $143.6 million at
December 31, 2009. Time deposits totaled $491.9 million at December 31, 2009, a decrease
of $37.6 million, or 7.1%, over the prior year end. The funds generated from the
increases in deposits were used to fund loan growth and reduce FHLBB advances during the
period.
Liquidity and Capital Resources: Liquid assets are maintained at levels considered
adequate to meet the Companys liquidity needs. Liquidity levels are adjusted to fund
loan commitments, repay borrowings, fund deposit outflows and pay real estate taxes on
mortgage loans held for investment. Liquidity is also adjusted as appropriate to meet
asset and liability management objectives.
The Companys primary sources of liquidity are deposits, advances from the Federal Home
Loan Bank of Boston, amortization and prepayment of loans, maturities of investment
securities and other short-term investments, periodic principal repayments on
mortgage-backed securities and earnings and funds provided from operations. Although not
currently utilized, the Company also has available
58
lines of credit with two deposit brokers, as well as, for unsecured federal funds. While
scheduled principal repayments on loans are a relatively predictable source of funds,
deposit flows and loan prepayments are greatly influenced by market interest rates,
economic conditions, and rates offered by our competition. Interest rates on deposits are
priced to maintain a desired level of total deposits.
A portion of the Companys liquidity consists of cash and cash equivalents, which are a
product of operating, investing and financing activities. At December 31, 2009 and 2008,
respectively, $19.3 million and $14.9 million of the Companys assets were invested in
cash and cash equivalents. The primary sources of cash are principal repayments on loans,
proceeds from the calls and maturities of investment securities, increases in deposit
accounts and advances from the Federal Home Loan Bank of Boston.
During the years ended December 31, 2009 and 2008, loan originations and purchases, net
of collected principal and loan sales, totaled $70.0 million and $178.0 million,
respectively, reflecting continued growth in the loan portfolio due to a favorable
interest rate environment, a no-closing cost residential loan program targeted at the
refinance market and the use of two established local mortgage banking firms to originate
adjustable rate hybrid residential loans. Cash received from the calls and maturities of
investment securities totaled $2.5 million and $14.9 million during the years ended
December 31, 2009 and 2008, respectively. The Company purchased $8.1 million and $57.0
million and received proceeds from the sale of available for sale investment securities
of $21.2 million and $5.9 million during the years ended December 31, 2009 and 2008,
respectively. The Company started purchasing held to maturity securities in 2008
consisting of long term mortgage-backed securities and at December 31, 2009 had $19.1
million in securities held to maturity compared to $24.1 million at December 31, 2008.
Deposit flows are generally affected by the level of our interest rates, the interest
rates and products offered by local competitors, and other factors. The net increases in
total deposits were $86.6 million and $91.5 million for the years ended December 31, 2009
and 2008, respectively. The Company experienced increasing deposit levels in 2009 due to
new branch promotions and disintermediation from investment firms due to increasing
uncertainty in the financial markets and an historically low interest rate environment.
Liquidity management is both a daily and longer-term function of business management. If
the Company requires funds beyond its ability to generate them internally, borrowing
agreements exist with the Federal Home Loan Bank of Boston, which provide an additional
source of funds. At December 31, 2009, the Company had $263.8 million in advances from
the Federal Home Loan Bank of Boston and an additional available borrowing limit of
$146.5 million based on collateral requirements of the Federal Home Loan Bank of Boston.
The Companys internal policies limit borrowings to 30% of total assets, or $471.3
million at December 31, 2009.
At December 31, 2009, the Company had outstanding commitments to originate loans of $36.7
million and unfunded commitments under lines of credit and stand-by letters of credit of
$280.4 million. At December 31, 2009, time deposits scheduled to mature in less than one
year totaled $359.8 million. Based on prior experience, management believes that a
significant portion of such deposits will remain with the Company, although there can be
no assurance that this will be the case. In the event a significant portion of our
deposits are not retained by the Company, other funding sources will be utilized, such as
Federal Home Loan Bank of Boston advances, brokered deposits from two available lines,
and an unsecured federal funds line of credit in order to maintain the level of assets.
Alternatively, the Company would reduce the level of liquid assets, such as cash and cash
equivalents in order to meet funding needs. In addition, the cost of such deposits may be
significantly higher if market interest rates are higher or there is an increased amount
of competition for deposits in our market area at the time of renewal.
59
The following tables present information indicating various obligations and commitments
made by the Company as of December 31, 2009 and the respective maturity dates:
Contractual Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
More than Three |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
More than One Year |
|
|
Years Through Five |
|
|
|
|
|
|
Total |
|
|
One Year or Less |
|
|
Through Three Years |
|
|
Years |
|
|
Over Five Years |
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank advances(1) |
|
$ |
263,802 |
|
|
$ |
40,170 |
|
|
$ |
110,720 |
|
|
$ |
89,912 |
|
|
$ |
23,000 |
|
Interest expense payable on Federal Home
Loan Bank Advances |
|
|
30,693 |
|
|
|
9,952 |
|
|
|
13,849 |
|
|
|
4,808 |
|
|
|
2,084 |
|
Operating leases(2) |
|
|
13,682 |
|
|
|
787 |
|
|
|
1,511 |
|
|
|
1,383 |
|
|
|
10,001 |
|
Other liabilities(3) |
|
|
2,876 |
|
|
|
28 |
|
|
|
547 |
|
|
|
646 |
|
|
|
1,655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Contractual Obligations |
|
$ |
311,053 |
|
|
$ |
50,937 |
|
|
$ |
126,627 |
|
|
$ |
96,749 |
|
|
$ |
36,740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Secured under a blanket security agreement on qualifying assets,
principally, mortgage loans. |
|
(2) |
|
Represents non-cancelable operating leases for offices and office
equipment. |
|
(3) |
|
Consists of estimated benefit payments over the next ten years to
retirees under unfunded nonqualified pension plans. |
Other Commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
More than One Year |
|
|
More than Three Years |
|
|
|
|
|
|
Total |
|
|
One Year or Less |
|
|
Through Three Years |
|
|
Through Five Years |
|
|
Over Five Years |
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
Real estate loan commitments(1) |
|
$ |
35,330 |
|
|
$ |
27,270 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
8,060 |
|
Commercial business loan commitments(1) |
|
|
1,320 |
|
|
|
698 |
|
|
|
350 |
|
|
|
272 |
|
|
|
|
|
Commercial business loan lines of credit |
|
|
57,713 |
|
|
|
7,929 |
|
|
|
3,714 |
|
|
|
|
|
|
|
46,070 |
|
Unused portion of home equity lines of credit(2) |
|
|
125,511 |
|
|
|
378 |
|
|
|
3,619 |
|
|
|
17,965 |
|
|
|
103,549 |
|
Unused portion of construction loans |
|
|
86,492 |
|
|
|
37,711 |
|
|
|
35,365 |
|
|
|
1,893 |
|
|
|
11,523 |
|
Unused checking overdraft lines of credit(3) |
|
|
94 |
|
|
|
94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Standby letters of credit |
|
|
10,555 |
|
|
|
9,065 |
|
|
|
890 |
|
|
|
600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Commitments |
|
$ |
317,015 |
|
|
$ |
83,145 |
|
|
$ |
43,938 |
|
|
$ |
20,730 |
|
|
$ |
169,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General: |
|
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract and generally
have fixed expiration dates or other termination clauses. |
|
(1) |
|
Commitments for loans are extended to customers for up to 180 days
after which they expire. |
|
(2) |
|
Unused portions of home equity lines of credit are available to
the borrower for up to 10 years. |
|
(3) |
|
Unused portion of checking overdraft lines of credit are available
to customers in good standing. |
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements, other than noted above,
that have or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources that is material to investors.
60
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Management of Market and Interest Rate Risk
General: The majority of our assets and liabilities are monetary in nature.
Consequently, our most significant form of market risk is interest rate risk. Our assets,
consisting primarily of mortgage loans, in general have longer contractual maturities
than our liabilities, consisting primarily of deposits. As a result, a principal part of
our business strategy is to manage interest rate risk and reduce the exposure of our net
interest income to changes in market interest rates. Accordingly, our Board of Directors
has established an Asset/Liability Committee which is responsible for evaluating the
interest rate risk inherent in our assets and liabilities, for determining the level of
risk that is appropriate given our business strategy, operating environment, capital,
liquidity and performance objectives, and for managing this risk consistent with the
guidelines approved by the Board of Directors. Management monitors the level of interest
rate risk on a regular basis and the Asset/Liability Committee meets at least quarterly
to review our asset/liability policies and interest rate risk position.
We have sought to manage our interest rate risk in order to minimize the exposure of our
earnings and capital to changes in interest rates. During the low interest rate
environment that has existed in recent years, we have implemented the following
strategies to manage our interest rate risk: (i) emphasizing adjustable rate loans
including, adjustable rate one-to-four family, commercial and consumer loans, (ii)
reducing and shortening the expected average life of the investment portfolio, and (iii)
periodically lengthening the term structure of our borrowings from the Federal Home Loan
Bank of Boston. These measures should serve to reduce the volatility of our future net
interest income in different interest rate environments.
Quantitative Analysis:
Income Simulation: Simulation analysis is used to estimate our interest rate risk
exposure at a particular point in time. It is a dynamic method in that it incorporates
our forecasted balance sheet growth assumptions under the different interest rate
scenarios tested. We utilize the income simulation method to analyze our interest rate
sensitivity position to manage the risk associated with interest rate movements. At least
quarterly, our Asset/Liability Committee reviews the potential effect changes in interest
rates could have on the repayment or repricing of rate sensitive assets and funding
requirements of rate sensitive liabilities. Our most recent simulation uses projected
repricing of assets and liabilities at December 31, 2009 on the basis of contractual
maturities, anticipated repayments and scheduled rate adjustments. Prepayment rate
assumptions can have a significant impact on interest income simulation results. Because
of the large percentage of loans and mortgage-backed securities we hold, rising or
falling interest rates may have a significant impact on the actual prepayment speeds of
our mortgage related assets that may in turn effect our interest rate sensitivity
position. When interest rates rise, prepayment speeds slow and the average expected life
of our assets would tend to lengthen more than the expected average life of our
liabilities and therefore would most likely result in a decrease to our asset sensitive
position.
|
|
|
|
|
|
|
Percentage Decrease in |
|
|
Estimated |
|
|
Net Interest Income Over |
|
|
12 Months |
300 basis point increase in rates |
|
|
(1.87 |
)% |
50 basis point decrease in rates |
|
|
(3.50 |
) |
Rockville Banks Asset/Liability policy currently limits projected changes in net
interest income to a maximum variance of (5%) for every 100 basis point interest rate
change measured over a twelve-month and a twenty-four month period when compared to the
flat rate scenario. In addition, our policy limits change in return on assets (ROA) by
a maximum of (15) basis points for every 100 basis point interest rate change when
compared to the flat rate scenario, or the change will be limited to 20% of the flat rate
scenario ROA (for every 100 basis point interest rate change), whichever is less. These
policy limits are re-evaluated on a periodic basis (not less than annually) and may be
61
modified, as appropriate. Because of the asset-sensitivity of our balance sheet, coupled
with little opportunity to decrease deposit rates further due to their current low
nominal level, income is projected to decrease if interest rates fall. Also included in
the decreasing rate scenario is the assumption that further declines are reflective of a
deeper recession as well as narrower credit spreads from Federal Market intervention. At
December 31, 2009, income at risk (i.e., the change in net interest income) decreased
1.87% and decreased 3.50% based on a 300 basis point average increase or a 50 basis point
average decrease, respectively. At December 31, 2009, return on assets is modeled to
decrease by 5 basis points and decrease by 6 basis points based on a 300 basis point
increase or a 50 basis point decrease, respectively. While we believe the assumptions
used are reasonable, there can be no assurance that assumed prepayment rates will
approximate actual future mortgage-backed security and loan repayment activity.
62
Item 8. Financial Statements and Supplementary Data
ROCKVILLE FINANCIAL, INC.
CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
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64 |
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65 |
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67 |
|
|
|
|
|
|
CONSOLIDATED
FINANCIAL STATEMENTS: |
|
|
|
|
|
|
|
|
|
|
|
|
68 |
|
|
|
|
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69 |
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71 |
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72 |
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74 |
|
63
REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Rockville Financial, Inc. (the Company) is responsible for establishing and
maintaining adequate internal control over financial reporting.
The Companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with accounting principles generally accepted in the
United States of America. The Companys internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the Company;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with accounting principles generally accepted in the United
States of America, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and Directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the Companys assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Companys internal control over financial reporting as
of December 31, 2009, based on the framework set forth by the Committee of Sponsoring Organizations
of the Treadway Commission in Internal Control Integrated Framework. Based on that assessment,
management concluded that, as of December 31, 2009, the Companys internal control over financial
reporting is effective based on the criteria established in Internal Control Integrated
Framework.
The effectiveness of the Companys internal control over financial reporting as of December 31,
2009, has been audited by Wolf and Company, P.C., an independent registered public accounting firm.
|
|
|
|
|
|
|
|
|
|
|
/s/ John T. Lund
|
|
|
William J. McGurk
|
|
|
|
John T. Lund |
|
|
President, Chief Executive Officer
and Director
|
|
|
|
Senior Vice President, Chief Financial
Officer and Treasurer |
|
|
Date: March 10, 2010
64
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Rockville Financial, Inc.
We have audited Rockville Financial, Inc.s internal control over financial reporting as of
December 31, 2009, based on criteria established in Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission. Rockville Financial
Inc.s management is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting.
Our responsibility is to express an opinion on the Companys internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of internal control based on the assessed
risk. Our audit also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with accounting principles generally accepted in the
United States of America. Also, because managements assessment and our audit were conducted to
meet the reporting requirements of Section 112 of the Federal Deposit Insurance Corporation
Improvement Act (FDICIA), our audit of Rockville Financial, Inc.s internal control over financial
reporting included controls over the preparation of financial statements in accordance with the
instructions to the Consolidated Financial Statements for Bank Holding Companies (Form FR Y-9C). A
companys internal control over financial reporting includes those policies and procedures that (a)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (b) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (c) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Rockville Financial, Inc. maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2009, based on criteria established in Internal
Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the December 31, 2009 consolidated financial statements of Rockville
Financial, Inc. and our report dated March 10, 2010 expressed an unqualified opinion.
/s/ Wolf & Company, P.C.
Boston, Massachusetts
March 10, 2010
65
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Rockville Financial, Inc.
We have
audited the accompanying consolidated statement of condition of Rockville Financial, Inc. and
subsidiaries (the Company) as of December 31, 2009,
and the related consolidated statements of
operations, changes in stockholders equity and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Rockville Financial, Inc. and subsidiaries as of December 31, 2009,
and the results of their operations and their cash flows for the year
then ended in conformity with accounting principles generally accepted in the United States of
America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), Rockville Financial, Inc. and subsidiaries internal control over financial
reporting as of December 31, 2009, based on criteria established in Internal ControlIntegrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and
our report dated March 10, 2010 expressed an unqualified opinion on the effectiveness of Rockville
Financial Inc.s internal control over financial reporting.
/s/ Wolf & Company, P.C.
Boston, Massachusetts
March 10, 2010
66
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Rockville Financial, Inc.
Rockville, Connecticut
We have audited the accompanying consolidated statement of condition of Rockville Financial, Inc.
and its subsidiaries (collectively, the Company) as of December 31, 2008, and the related
consolidated statements of operations, changes in stockholders equity, and cash flows for the
years ended December 31, 2008 and 2007. These financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects,
the financial position of the Company and its subsidiaries as of December 31, 2008, and the results
of their operations and their cash flows for each of the years ended December 31, 2008 and 2007, in
conformity with accounting principles generally accepted in the United States of America.
|
|
|
/s/ DELOITTE & TOUCHE LLP |
|
|
Hartford, Connecticut
|
|
|
March 10, 2009 |
|
|
67
Rockville Financial, Inc. and Subsidiaries
Consolidated Statements of Condition
As of December 31, 2009 and 2008
(In Thousands, Except Share Data)
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
ASSETS |
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS: |
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
18,507 |
|
|
$ |
14,607 |
|
Short-term investments |
|
|
800 |
|
|
|
294 |
|
|
|
|
|
|
|
|
Total cash and cash equivalents |
|
|
19,307 |
|
|
|
14,901 |
|
AVAILABLE FOR SALE SECURITIES-At fair value |
|
|
102,751 |
|
|
|
141,250 |
|
HELD TO MATURITY SECURITIES-At amortized cost |
|
|
19,074 |
|
|
|
24,138 |
|
LOANS RECEIVABLE (Net of allowance for loan
losses of $12,539 in 2009 and $12,553 in 2008) |
|
|
1,361,019 |
|
|
|
1,291,791 |
|
FEDERAL HOME LOAN BANK STOCK, at cost |
|
|
17,007 |
|
|
|
17,007 |
|
ACCRUED INTEREST RECEIVABLE |
|
|
4,287 |
|
|
|
4,636 |
|
DEFERRED TAX ASSET-Net |
|
|
10,608 |
|
|
|
11,476 |
|
PREMISES AND EQUIPMENT-Net |
|
|
15,863 |
|
|
|
16,405 |
|
GOODWILL |
|
|
1,070 |
|
|
|
1,070 |
|
CASH SURRENDER VALUE OF BANK-OWNED LIFE INSURANCE |
|
|
10,076 |
|
|
|
9,705 |
|
OTHER REAL ESTATE OWNED |
|
|
3,061 |
|
|
|
|
|
PREPAID FDIC ASSESSMENTS |
|
|
5,884 |
|
|
|
|
|
OTHER ASSETS |
|
|
1,127 |
|
|
|
694 |
|
|
|
|
|
|
|
|
|
|
$ |
1,571,134 |
|
|
$ |
1,533,073 |
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
DEPOSITS: |
|
|
|
|
|
|
|
|
Non-interest-bearing |
|
$ |
150,484 |
|
|
$ |
116,113 |
|
Interest-bearing |
|
|
978,624 |
|
|
|
926,395 |
|
|
|
|
|
|
|
|
Total deposits |
|
|
1,129,108 |
|
|
|
1,042,508 |
|
MORTGAGORS AND INVESTORS ESCROW ACCOUNTS |
|
|
6,385 |
|
|
|
6,077 |
|
ADVANCES FROM THE FEDERAL HOME LOAN BANK |
|
|
263,802 |
|
|
|
322,882 |
|
ACCRUED EXPENSES AND OTHER LIABILITIES |
|
|
14,411 |
|
|
|
15,829 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
1,413,706 |
|
|
|
1,387,296 |
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES (Note 16)
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY: |
|
|
|
|
|
|
|
|
Preferred stock (no par value; 1,000,000 shares authorized; no shares issued and outstanding at
December 31, 2009 and 2008) |
|
|
|
|
|
|
|
|
Common stock (no par value; 29,000,000 shares authorized;
19,554,774 and 19,568,284 shares issued and outstanding at December 31, 2009 and 2008, respectively.) |
|
|
85,249 |
|
|
|
85,249 |
|
Additional paid in capital |
|
|
4,082 |
|
|
|
3,380 |
|
Unearned compensation ESOP |
|
|
(4,178 |
) |
|
|
(5,035 |
) |
Treasury stock, at cost (698,826 and 695,253 shares at December 31, 2009 and 2008, respectively) |
|
|
(9,663 |
) |
|
|
(9,709 |
) |
Retained earnings |
|
|
82,971 |
|
|
|
75,985 |
|
Accumulated other comprehensive loss, net of tax |
|
|
(1,033 |
) |
|
|
(4,093 |
) |
|
|
|
|
|
|
|
Total stockholders equity |
|
|
157,428 |
|
|
|
145,777 |
|
|
|
|
|
|
|
|
|
|
$ |
1,571,134 |
|
|
$ |
1,533,073 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
68
Rockville Financial, Inc. and Subsidiaries
Consolidated Statements of Operations
Years Ended December 31, 2009, 2008 and 2007
(In Thousands, Except Share Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
INTEREST AND DIVIDEND INCOME: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
$ |
69,517 |
|
|
$ |
68,458 |
|
|
$ |
66,995 |
|
Securities-interest |
|
|
6,116 |
|
|
|
7,406 |
|
|
|
5,600 |
|
Securities-dividends |
|
|
428 |
|
|
|
1,647 |
|
|
|
1,180 |
|
Interest-bearing deposits |
|
|
1 |
|
|
|
34 |
|
|
|
102 |
|
|
|
|
|
|
|
|
|
|
|
Total interest and dividend income |
|
|
76,062 |
|
|
|
77,545 |
|
|
|
73,877 |
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST EXPENSE: |
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
19,371 |
|
|
|
25,069 |
|
|
|
27,081 |
|
Borrowed funds |
|
|
10,404 |
|
|
|
9,877 |
|
|
|
8,496 |
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
29,775 |
|
|
|
34,946 |
|
|
|
35,577 |
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
46,287 |
|
|
|
42,599 |
|
|
|
38,300 |
|
|
PROVISION FOR LOAN LOSSES |
|
|
1,961 |
|
|
|
2,393 |
|
|
|
749 |
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision
for loan losses |
|
|
44,326 |
|
|
|
40,206 |
|
|
|
37,551 |
|
|
|
|
|
|
|
|
|
|
|
|
NON-INTEREST INCOME (LOSS): |
|
|
|
|
|
|
|
|
|
|
|
|
Total other-than-temporary impairment losses on equity securities |
|
|
(362 |
) |
|
|
(13,315 |
) |
|
|
(233 |
) |
Total other-than-temporary impairment losses on debt securities |
|
|
|
|
|
|
(1,566 |
) |
|
|
|
|
Portion of impairment losses recognized in other comprehensive
loss debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net impairment losses recognized in earnings |
|
|
(362 |
) |
|
|
(14,881 |
) |
|
|
(233 |
) |
Service charges and fees |
|
|
5,221 |
|
|
|
5,131 |
|
|
|
4,551 |
|
Net gain from sale of securities |
|
|
936 |
|
|
|
381 |
|
|
|
508 |
|
Net gain from sales of loans |
|
|
782 |
|
|
|
|
|
|
|
|
|
Other income |
|
|
395 |
|
|
|
382 |
|
|
|
368 |
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income (loss) |
|
|
6,972 |
|
|
|
(8,987 |
) |
|
|
5,194 |
|
|
|
|
|
|
|
|
|
|
|
|
NON-INTEREST EXPENSE: |
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
|
18,571 |
|
|
|
17,150 |
|
|
|
16,082 |
|
Service bureau fees |
|
|
3,872 |
|
|
|
3,808 |
|
|
|
3,361 |
|
Occupancy and equipment |
|
|
4,380 |
|
|
|
4,103 |
|
|
|
3,594 |
|
Professional fees |
|
|
1,131 |
|
|
|
1,484 |
|
|
|
1,550 |
|
Marketing and promotions |
|
|
1,156 |
|
|
|
1,315 |
|
|
|
1,131 |
|
FDIC assessments |
|
|
2,222 |
|
|
|
654 |
|
|
|
229 |
|
Other |
|
|
5,299 |
|
|
|
5,248 |
|
|
|
4,354 |
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense |
|
|
36,631 |
|
|
|
33,762 |
|
|
|
30,301 |
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES |
|
|
14,667 |
|
|
|
(2,543 |
) |
|
|
12,444 |
|
|
INCOME TAX EXPENSE (BENEFIT) |
|
|
4,935 |
|
|
|
(956 |
) |
|
|
4,116 |
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) |
|
$ |
9,732 |
|
|
$ |
(1,587 |
) |
|
$ |
8,328 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
(Continued)
69
Rockville Financial, Inc. and Subsidiaries
Consolidated Statements of Operations (Concluded)
Years Ended December 31, 2009, 2008 and 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.53 |
|
|
$ |
(0.09 |
) |
|
$ |
0.44 |
|
Diluted |
|
$ |
0.53 |
|
|
$ |
(0.09 |
) |
|
$ |
0.44 |
|
Weighted-average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
18,469,092 |
|
|
|
18,428,158 |
|
|
|
18,750,935 |
|
Diluted |
|
|
18,473,665 |
|
|
|
18,428,158 |
|
|
|
18,750,935 |
|
See accompanying notes to consolidated financial statements.
70
Rockville Financial, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders Equity
For the Years Ended December 31, 2009, 2008 and 2007
(In Thousands, Except Share Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
Unearned |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
Total |
|
|
|
Common Stock |
|
|
Paid in |
|
|
compensation |
|
|
Retained |
|
|
Treasury Stock |
|
|
Other Comprehensive |
|
|
Stockholders |
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
- ESOP |
|
|
Earnings |
|
|
Shares |
|
|
Amount |
|
|
Loss |
|
|
Equity |
|
Balance at December 31, 2006 |
|
|
19,574,640 |
|
|
$ |
85,249 |
|
|
$ |
1,854 |
|
|
$ |
(6,434 |
) |
|
$ |
76,063 |
|
|
|
|
|
|
$ |
|
|
|
$ |
(1,668 |
) |
|
$ |
155,064 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,328 |
|
Change in net unrealized gain on
securities available for sale,
net of reclassification adjustments and
tax effects |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
451 |
|
|
|
451 |
|
Change in accumulated other comprehensive
loss related to employee benefit plans,
net of reclassification adjustments and
tax effects |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
976 |
|
|
|
976 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock repurchased |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
496,730 |
|
|
|
(7,293 |
) |
|
|
|
|
|
|
(7,293 |
) |
Share-based compensation expense |
|
|
(4,800 |
) |
|
|
|
|
|
|
1,276 |
|
|
|
700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,976 |
|
Repurchase of stock options |
|
|
|
|
|
|
|
|
|
|
(100 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(100 |
) |
Cancellation of shares for tax withholding |
|
|
(1,556 |
) |
|
|
|
|
|
|
(21 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21 |
) |
Dividends paid, $0.16 per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,008 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,008 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007 |
|
|
19,568,284 |
|
|
|
85,249 |
|
|
|
3,009 |
|
|
|
(5,734 |
) |
|
|
81,383 |
|
|
|
496,730 |
|
|
|
(7,293 |
) |
|
|
(241 |
) |
|
|
156,373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,587 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,587 |
) |
Change in net unrealized gain on
securities available for sale, net of
reclassification adjustments and tax
effects |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
420 |
|
|
|
420 |
|
Change in accumulated other comprehensive
loss related to employee benefit plans,
net of reclassification adjustments and
tax effects |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,272 |
) |
|
|
(4,272 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,439 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock repurchased |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
291,082 |
|
|
|
(3,787 |
) |
|
|
|
|
|
|
(3,787 |
) |
Share-based compensation expense |
|
|
|
|
|
|
|
|
|
|
1,956 |
|
|
|
699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,655 |
|
Treasury stock issued |
|
|
|
|
|
|
|
|
|
|
(1,371 |
) |
|
|
|
|
|
|
|
|
|
|
(92,559 |
) |
|
|
1,371 |
|
|
|
|
|
|
|
|
|
Cancellation of shares for tax withholding |
|
|
|
|
|
|
|
|
|
|
(214 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(214 |
) |
Dividends paid, $0.20 per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,691 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,691 |
) |
SFAS 158 pension remeasurement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(120 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(120 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
|
19,568,284 |
|
|
|
85,249 |
|
|
|
3,380 |
|
|
|
(5,035 |
) |
|
|
75,985 |
|
|
|
695,253 |
|
|
|
(9,709 |
) |
|
|
(4,093 |
) |
|
|
145,777 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of adjustment to
retained earnings relating to impairment
of securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,034 |
|
|
|
|
|
|
|
|
|
|
|
(1,034 |
) |
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,732 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,732 |
|
Change in
net unrealized gain on securities available for sale, net of
reclassification adjustments and tax
effects |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,441 |
|
|
|
1,441 |
|
Change in
accumulated other comprehensive loss related to employee
benefit plans, net of reclassification
adjustments and tax effects |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,653 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock repurchased |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000 |
|
|
|
(198 |
) |
|
|
|
|
|
|
(198 |
) |
Share-based compensation expense |
|
|
|
|
|
|
|
|
|
|
827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
827 |
|
ESOP shares released or committed to be
released |
|
|
|
|
|
|
|
|
|
|
71 |
|
|
|
857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
928 |
|
Forfeited unvested restricted stock |
|
|
(9,200 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock issued |
|
|
|
|
|
|
|
|
|
|
(152 |
) |
|
|
|
|
|
|
(92 |
) |
|
|
(16,427 |
) |
|
|
244 |
|
|
|
|
|
|
|
|
|
Cancellation of shares for tax withholding |
|
|
(4,310 |
) |
|
|
|
|
|
|
(44 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(44 |
) |
Dividends paid, $0.20 per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,688 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,688 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009 |
|
|
19,554,774 |
|
|
$ |
85,249 |
|
|
$ |
4,082 |
|
|
$ |
(4,178 |
) |
|
$ |
82,971 |
|
|
|
698,826 |
|
|
$ |
(9,663 |
) |
|
$ |
(1,033 |
) |
|
$ |
157,428 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
71
Rockville Financial, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31, 2009, 2008 and 2007
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
9,732 |
|
|
$ |
(1,587 |
) |
|
$ |
8,328 |
|
Adjustments to reconcile net income (loss) to net
cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization and accretion of premiums and
discounts on investments, net |
|
|
(160 |
) |
|
|
(59 |
) |
|
|
48 |
|
Share-based compensation expense |
|
|
827 |
|
|
|
1,743 |
|
|
|
819 |
|
Amortization of ESOP Expense |
|
|
928 |
|
|
|
912 |
|
|
|
1,036 |
|
Provision for loan losses |
|
|
1,961 |
|
|
|
2,393 |
|
|
|
749 |
|
Net gain from sales of securities |
|
|
(936 |
) |
|
|
(381 |
) |
|
|
(508 |
) |
Other-than-temporary impairment of securities |
|
|
362 |
|
|
|
14,881 |
|
|
|
233 |
|
Loans originated for sale |
|
|
(43,958 |
) |
|
|
|
|
|
|
|
|
Proceeds from sales of loans |
|
|
43,958 |
|
|
|
|
|
|
|
|
|
Gains on sale of OREO |
|
|
(16 |
) |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
1,608 |
|
|
|
1,502 |
|
|
|
1,416 |
|
Loss on disposal of equipment |
|
|
34 |
|
|
|
3 |
|
|
|
4 |
|
Deferred income tax (benefit) provision |
|
|
(1,242 |
) |
|
|
(5,528 |
) |
|
|
540 |
|
Increase in cash surrender value of bank-owned
life insurance |
|
|
(371 |
) |
|
|
(383 |
) |
|
|
(368 |
) |
Net change in: |
|
|
|
|
|
|
|
|
|
|
|
|
Deferred loan fees and premiums |
|
|
784 |
|
|
|
113 |
|
|
|
283 |
|
Accrued interest receivable |
|
|
349 |
|
|
|
(480 |
) |
|
|
317 |
|
Other assets |
|
|
(6,076 |
) |
|
|
2,484 |
|
|
|
(2,979 |
) |
Accrued expenses and other liabilities |
|
|
2,602 |
|
|
|
167 |
|
|
|
2,955 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
10,386 |
|
|
|
15,780 |
|
|
|
12,873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of available for sale securities |
|
|
21,171 |
|
|
|
5,870 |
|
|
|
6,448 |
|
Proceeds from calls and maturities of available for
sale securities |
|
|
2,500 |
|
|
|
14,850 |
|
|
|
61,675 |
|
Principal payments on available for sale
mortgage-backed securities |
|
|
25,525 |
|
|
|
17,596 |
|
|
|
11,832 |
|
Principal payments on held to maturity
mortgage-backed securities |
|
|
5,135 |
|
|
|
1,842 |
|
|
|
|
|
Purchases of available for sale securities |
|
|
(8,091 |
) |
|
|
(57,030 |
) |
|
|
(82,950 |
) |
Purchases of held to maturity securities |
|
|
|
|
|
|
(25,948 |
) |
|
|
|
|
Purchase of Federal Home Loan Bank stock |
|
|
|
|
|
|
(5,839 |
) |
|
|
(1,332 |
) |
Proceeds from sales of portfolio loans |
|
|
161 |
|
|
|
8,175 |
|
|
|
574 |
|
Proceeds from sale of OREO |
|
|
1,859 |
|
|
|
|
|
|
|
|
|
Purchase of loans |
|
|
(2,529 |
) |
|
|
(26,212 |
) |
|
|
(16,656 |
) |
Loan originations, net of principal payments |
|
|
(74,509 |
) |
|
|
(159,933 |
) |
|
|
(67,922 |
) |
Purchases of premises and equipment |
|
|
(1,100 |
) |
|
|
(3,558 |
) |
|
|
(3,148 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(29,878 |
) |
|
|
(230,187 |
) |
|
|
(91,479 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Continued) |
72
Rockville Financial, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Concluded)
Years Ended December 31, 2009, 2008 and 2007
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in non-interest-bearing deposits |
|
|
34,371 |
|
|
|
16,735 |
|
|
|
6,310 |
|
Net increase in interest-bearing deposits |
|
|
52,229 |
|
|
|
74,735 |
|
|
|
60,217 |
|
Net increase in mortgagors and investors escrow
accounts |
|
|
308 |
|
|
|
509 |
|
|
|
248 |
|
Net (decrease) increase in short-term Federal
Home Loan Bank advances |
|
|
(51,000 |
) |
|
|
38,000 |
|
|
|
(37,000 |
) |
Proceeds from long-term Federal Home Loan Bank
advances |
|
|
8,112 |
|
|
|
113,320 |
|
|
|
67,800 |
|
Repayments of long-term Federal Home Loan Bank
advances |
|
|
(16,192 |
) |
|
|
(30,179 |
) |
|
|
(7,169 |
) |
Common stock repurchased |
|
|
(198 |
) |
|
|
(4,119 |
) |
|
|
(7,175 |
) |
Cancellation of shares for tax withholding |
|
|
(44 |
) |
|
|
|
|
|
|
|
|
Cash dividends paid on common stock |
|
|
(3,688 |
) |
|
|
(3,691 |
) |
|
|
(3,008 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
23,898 |
|
|
|
205,310 |
|
|
|
80,223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS |
|
|
4,406 |
|
|
|
(9,097 |
) |
|
|
1,617 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTSBeginning of year |
|
|
14,901 |
|
|
|
23,998 |
|
|
|
22,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTSEnd of year |
|
$ |
19,307 |
|
|
$ |
14,901 |
|
|
$ |
23,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
$ |
29,901 |
|
|
$ |
34,683 |
|
|
$ |
35,304 |
|
Income taxes |
|
|
4,401 |
|
|
|
1,751 |
|
|
|
4,501 |
|
Transfer of loans to other real estate owned |
|
|
4,904 |
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
73
Rockville Financial, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
|
|
|
Note 1. |
|
MUTUAL HOLDING COMPANY REORGANIZATION AND
MINORITY STOCK ISSUANCE |
|
|
|
|
|
Rockville Financial, Inc., (the Company), a state-chartered mid-tier stock holding
company was formed on December 17, 2004 to reorganize Charter Oak Community Bank Corp.
from a state-chartered mutual holding company to a state-chartered two-tier mutual and
stock holding company. The Reorganization and Minority Stock Issuance Plan (the Plan)
adopted by the Companys, Charter Oak Community Bank Corp.s and Rockville Banks Board
of Directors was completed on May 20, 2005. Charter Oak Community Bank Corp.s name was
changed to Rockville Financial MHC, Inc. and 100% of the stock of its wholly-owned
subsidiary Rockville Bank (the Bank) was exchanged for 10,689,250 shares, or 55% of the
stock issued by the Company. Rockville Bank provides a full range of banking services to
consumer and commercial customers through its main office in Rockville and twenty
branches located in Hartford, New London and Tolland Counties in Connecticut. The Banks
deposits are insured under the Deposit Insurance Fund, which is administered by the
Federal Deposit Insurance Corporation. |
|
|
|
|
|
The Company sold 8,357,050 shares of its common stock, representing 43% of the
outstanding common shares at $10.00 per share to eligible account holders and employee
benefit plans of the Bank pursuant to subscription rights as set forth in the Plan.
Reorganization costs of approximately $2.3 million were incurred in the offering and were
recorded as a reduction of the proceeds from the shares sold in the reorganization. |
|
|
|
|
|
For a period of five years following completion of the Plan, no person, acting singly or
with an associate or group of persons acting in concert, shall directly, or indirectly,
offer to acquire or acquire the beneficial ownership of more than ten percent (10%) of
any class of an equity security of the Company without the prior approval of the
Connecticut Banking Commissioner. |
|
|
|
|
|
As of December 31, 2009, the Company had not engaged in any business activities other
than owning the common stock of Rockville Bank. Rockville Financial MHC, Inc. does not
conduct any business activity other than owning a majority of the common stock of
Rockville Financial, Inc. In connection with the stock offering, the Company established Rockville Bank Foundation,
Inc., a non-profit charitable organization dedicated to helping the communities that the
Bank serves. The Foundation was funded with a contribution of 388,700 shares of the
Companys common stock, representing 2% of the outstanding common shares. The stock
donation resulted in a $3.9 million contribution expense being recorded and an additional
$63,000 deferred tax benefit was recognized as the basis of the contribution for tax
purposes equal to the stocks trading price on the first day of trading which was higher
than the initial issuance price used to record the contribution expense. |
|
|
|
Note 2. |
|
BASIS OF PRESENTATION, PRINCIPLES OF CONSOLIDATION AND SIGNIFICANT ACCOUNTING POLICIES |
|
|
|
|
|
The consolidated financial statements and the accompanying notes presented in this
report include the accounts of the Company and its wholly-owned subsidiary Rockville
Bank, and the Banks wholly-owned subsidiaries, SBR Mortgage Company, SBR Investment
Corp., Rockville Commercial Foreclosed Properties, Inc., Rockville Residential Foreclosed
Properties, Inc., Rockville Financial Services, Inc and Rockville Bank Mortgage, Inc. The
consolidated financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America (GAAP). |
|
|
|
|
|
Certain reclassifications have been made in the 2008 and 2007 consolidated financial
statements to conform to the 2009 presentation. |
|
|
|
|
|
A description of the Companys significant accounting policies is presented below: |
|
|
|
|
|
Use of Estimates: The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of income and expenses during the reporting periods. Operating results in the future could vary from
the amounts derived from managements estimates and assumptions. Material estimates that
are particularly |
74
|
|
|
|
|
susceptible to significant change in the near term relate to the determination of the
allowance for loan losses, determination of pension assumptions, stock-based
compensation, the valuation of deferred tax assets, and the evaluation of securities for
other-than-temporary impairment. |
|
|
|
|
|
Cash and Cash Equivalents: For purposes of reporting cash flows, the Company considers
all highly liquid debt instruments with an original maturity of three months or less to
be cash equivalents. The Company maintains amounts due from banks and Federal funds sold
that, at times, may exceed federally insured limits. The Company has not experienced any
losses from such concentrations. The Bank is required by the Federal Reserve System to
maintain non-interest-bearing cash reserves equal to a percentage of certain deposits. |
|
|
|
|
|
Securities: Management determines the appropriate classification of securities at the
date individual investment securities are acquired, and the appropriateness of such
classification is reassessed at each statement of condition date. |
|
|
|
|
|
Debt securities that management has the positive intent and ability to hold to maturity
are classified as held to maturity and recorded at amortized cost. Trading
securities, if any, are carried at fair value, with unrealized gains and losses
recognized in earnings. Securities not classified as held to maturity or trading,
including equity securities with readily determinable fair values, are classified as
available for sale and recorded at fair value, with unrealized gains and losses
excluded from earnings and reported in other comprehensive income. As of December 31,
2009 and 2008, the Company had no trading securities. |
|
|
|
|
|
Purchase premiums and discounts are recognized in interest income using the interest
method over the expected terms of the securities. Each reporting period, the Company
evaluates all securities classified as available for sale or held to maturity, with a
decline in fair value below the amortized cost of the investment to determine whether or
not the impairment is deemed to be other-than-temporary impairment (OTTI). |
|
|
|
|
|
Marketable equity securities are evaluated for OTTI based on the severity and duration of
the impairment and, if deemed to be other-than-temporary, the declines in fair value are
reflected in earnings as realized losses. For debt securities, OTTI is required to be
recognized (1) if the Company intends to sell the security; (2) if it is more likely
than not that the Company will be required to sell the security before recovery of its
amortized cost basis; or (3) the present value of expected cash flows is not sufficient
to recover the entire amortized cost basis. For all impaired debt securities that the
Company intends to sell, or more likely than not will be required to sell, the full
amount of the depreciation is recognized as OTTI through earnings. Credit-related OTTI
for all other impaired debt securities is recognized through earnings. Non-credit related OTTI for such debt
securities is recognized in other comprehensive income, net of applicable taxes. |
|
|
|
|
|
Gains and losses on the sale of securities are recorded on the trade date and are
determined using the specific identification method. |
|
|
|
|
|
Federal Home Loan Bank Stock: The Bank, as a member of the Federal Home Loan Bank system,
is required to maintain an investment in capital stock of the Federal Home Loan Bank of
Boston (FHLBB). Based on redemption provisions of the FHLBB, the stock has no quoted
market value and is carried at cost. At its discretion, the FHLBB may declare dividends
on the stock. On January 29, 2009, the FHLBB notified its members of its focus on
preserving capital in response to the ongoing market volatility. That letter outlined
that actions taken by the FHLBB included an excess stock repurchase moratorium, and
increased retained earnings target, and suspension of its quarterly dividend payment.
There can be no guarantee of future dividends. The Bank reviews for impairment based on
the ultimate recoverability of the cost basis in the FHLBB stock. As of December 31, 2009
and 2008, no impairment has been recognized. |
|
|
|
|
|
Loans: Loans are stated at current unpaid principal balances, net of the allowance for
loan losses, charge-offs, deferred loan origination costs and fees and loan purchase
premiums. Commitment fees for which the likelihood of exercise is remote are recognized
over the loan commitment period on a straight-line basis. |
|
|
|
|
|
A loan is classified as a trouble debt restructure (TDR) when certain concessions have
been made to the original contractual terms, such as reductions of interest rates or
deferral of interest or principal payments due to the borrowers financial condition. |
|
|
|
|
|
A loan is impaired when it is probable the Company will be unable to collect all
contractual principal and interest payments due in accordance with the terms of the loan
agreement. |
75
|
|
|
|
|
An impaired loan is measured based on the present value of expected future cash flows
discounted at the loans effective interest rate or, as a practical expedient, at the
loans observable market price or the fair value of the collateral if the loan is
collateral dependent. Management considers all non-accrual loans and TDRs to be
impaired. |
|
|
|
|
|
In most cases, loan payments less than 90 days past due, based on contractual terms, are
considered minor collection delays, and the related loans are generally not considered
impaired. The Company considers consumer installment loans to be pools of smaller
balance, homogenous loans that are collectively evaluated for impairment, unless such
loans are subject to a trouble debt restructuring agreement. |
|
|
|
|
|
Interest and Fees on Loans: Interest on loans is accrued and included in interest income
based on contractual rates applied to principal amounts outstanding. Accrual of interest
is discontinued, and previously accrued income is reversed, when loan payments are 90
days or more past due or when, in the judgment of management, collectibility of the loan
or loan interest becomes uncertain. |
|
|
|
|
|
Subsequent recognition of income occurs only to the extent payment is received subject to
managements assessment of the collectibility of the remaining interest and principal. A
non-accrual loan is restored to accrual status when it is no longer 90 days delinquent
and collectibility of interest and principal is no longer in doubt. |
|
|
|
|
|
Loan origination fees and direct loan origination costs (including loan commitment fees)
are deferred, and the net amount is recognized as an adjustment of the related loans
yield utilizing the interest method over the contractual life of the loan. |
|
|
|
|
|
Allowance for Loan Losses: The allowance for loan losses is established as embedded
losses are estimated to have occurred through the provisions for losses charged against
operations and is maintained at a level that management considers adequate to absorb
losses in the loan portfolio. Managements judgment in determining the adequacy of the
allowance is inherently subjective and is based on past loan loss experience, known and
inherent losses and size of the loan portfolios, an assessment of current economic and
real estate market conditions, estimates of the current value of underlying collateral,
review of regulatory authority examination reports and other relevant factors. An
allowance is maintained for impaired loans to reflect the difference, if any, between the
carrying value of the loan and the present value of the projected cash flows, observable
fair value or collateral value. Loans are charged-off against the allowance for loan
losses when management believes that the uncollectibility of principal is confirmed. Any
subsequent recoveries are credited to the allowance for loan losses when received. In
connection with the determination of the allowance for loan losses, management obtains
independent appraisals for significant properties, when considered necessary. |
|
|
|
|
|
The majority of the Companys loans are collateralized by real estate located in central
and eastern Connecticut in addition to a portion of the commercial real estate loan
portfolio located in the Northeast region of the United States. Accordingly, the
collateral value of a substantial portion of the Companys loan portfolio and real estate
acquired through foreclosure is susceptible to changes in market conditions in these
areas. |
|
|
|
|
|
Management believes that the allowance for loan losses is adequate. While management uses
available information to recognize losses on loans, future additions to the allowance or
charge-offs may be necessary based on changes in economic conditions, particularly in
Hartford, New London and Tolland Counties in Connecticut. In addition, various regulatory
agencies, as an integral part of their examination process, periodically review the
Companys allowance for loan losses. Such agencies have the authority to require the
Company to recognize additions to the allowance or charge-offs based on the agencies
judgments about information available to them at the time of their examination. |
|
|
|
|
|
Derivative Loan Commitments: Mortgage loan commitments are referred to as derivative loan
commitments if the loan that will result from exercise of the commitment will be held for
sale upon funding. Loan commitments that are derivatives are recognized at fair value on
the consolidated balance sheet in other assets and other liabilities with changes in
their fair values recorded in other non-interest income, if material. Fair value is based on changes in the fair value
of the underlying mortgage loans. |
|
|
|
|
|
Forward Loan Sale Commitments: To protect against the price risk inherent in derivative
loan commitments, the Company utilizes both mandatory delivery and best efforts
forward loan sale commitments to mitigate the risk of potential decreases in the values
of loans that would result from |
76
|
|
|
|
|
the exercise of the derivative loan commitments. Mandatory delivery contracts are
accounted for as derivative instruments. Mandatory delivery forward loan sale commitments
are recognized at fair value on the consolidated balance sheet in other assets and other
liabilities with changes in their fair values recorded in other non-interest income.
Subsequent to inception, changes in the fair value of the loan commitment are recognized
based on changes in the fair value of the underlying mortgage loan due to interest rate
changes, changes in the probability the derivative loan commitment will be exercised, and
the passage of time. In estimating fair value, the Company assigns a probability to a
loan commitment based on an expectation that it will be exercised and the loan will be
funded. |
|
|
|
|
|
The Company estimates the fair value of its forward loan sales commitments using a
methodology similar to that used for derivative loan commitments. Forward loan sale
commitments are recognized at fair value on the consolidated balance sheet in other
assets and other liabilities with changes in fair value recorded in other non-interest
income, if material. |
|
|
|
|
|
Other Real Estate Owned: Assets acquired through, or in lieu of, loan foreclosure are
held for sale and are initially recorded at fair value, less cost to sell, at the date of
foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are
periodically performed by management and the assets are carried at the lower of carrying
amount or fair value less cost to sell. Revenue and expenses from operations, changes in
the valuation allowance and any direct writedowns are included in other non-interest
expense. |
|
|
|
|
|
Reserve for Off-Balance Sheet Commitments: The reserve for off-balance sheet commitments
is a component of other liabilities and represents the estimate for probable credit
losses inherent in unfunded commitments to extend credit. Unfunded commitments to extend
credit include unfunded commercial and residential lines of credit, unfunded commercial
and residential construction commitments, standby and commercial letters of credit. The
process used to determine the reserve for off-balance sheet commitments is consistent
with the process for determining the allowance for loan losses. |
|
|
|
|
|
Bank-Owned Life Insurance: The cash surrender value of Bank-Owned Life Insurance
(BOLI), net of any deferred acquisition and surrender costs or loans is recorded as an
asset. Changes in the net cash surrender value of policies, as well as insurance proceeds
received, are reflected in non-interest income on the consolidated statement of
operations and are not subject to income taxes. As of December 31, 2009 and 2008 there
were no deferred acquisition costs, surrender costs or loans. There are no restrictions
on the use of any insurance proceeds the Company receives from BOLI. |
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Transfers of Financial Assets: Transfers of financial assets are accounted for as sales
when control over the assets has been surrendered. Control over transferred assets is
deemed to be surrendered when: (1) the assets have been isolated from the Company, (2)
the transferee obtains the right to pledge or exchange the transferred assets and no
condition both constrains the transferee from taking advantage of that right and provides
more than a trivial benefit for the transferor, and (3) the Company does not maintain
effective control over the transferred assets through either: (a) an agreement that both
entitles and obligates the transferor to repurchase or redeem the assets before maturity
or (b) the ability to unilaterally cause the holder to return specific assets, other than
through a cleanup call. |
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Premises and Equipment: Premises and equipment are stated at cost, net of accumulated
depreciation and amortization. Depreciation is charged to operations using the
straight-line method over the estimated useful lives of the related assets which range
from three to 40 years. Leasehold improvements are amortized over the shorter of the
improvements estimated economic lives or the related lease terms excluding lease
extension periods. Gains and losses on dispositions are recognized upon realization.
Maintenance and repairs are expensed as incurred and improvements are capitalized. |
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Advertising Costs: Advertising costs are expensed as incurred. |
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Impairment of Long-Lived Assets: Long-lived assets that are held and used by the Company
are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. If impairment is indicated by that
review, the asset is written down to its estimated fair value through a charge to
non-interest expense. No write-downs of long-lived assets were recorded for any period
presented herein. |
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Goodwill: In connection with a branch acquisition, the Company recorded goodwill, which
represents the excess of the fair value of deposit liabilities assumed over the assets
received. |
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Goodwill is not amortized and is evaluated for impairment annually. No impairment was
recorded during years ended December 31, 2009, 2008 and 2007. |
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Income Taxes: The Company recognizes income taxes under the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. Deferred tax assets
are reduced by a valuation allowance when, in the opinion of management, it is more
likely than not that all or some portion of the deferred tax assets will not be realized.
As of December 31, 2009 and 2008, management believes it is more likely than not that the
deferred tax assets will be realized through future earnings and future reversals of
existing taxable temporary differences. |
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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, 1998 through December 31,
2009; 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. |
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Pension and Other Post-Retirement Benefits: The Company has a noncontributory defined
benefit pension plan that provides benefits for full-time employees hired before January
1, 2005, meeting certain requirements as to age and length of service. The benefits are
based on years of service and average compensation, as defined. The Companys funding
policy is to contribute an amount needed to meet the minimum funding standards
established by the Employee Retirement Security Act of 1974 (ERISA). The compensation
cost of an employees pension benefit is recognized on the projected unit cost method over
the employees approximate service period. |
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In addition to providing pension benefits, the Company provides certain health care and
life insurance benefits for retired employees hired prior to March 1, 1993. Participants
become eligible for the benefits if they retire after reaching age 62 with five or more
years of service. Benefits are paid in fixed amounts depending on length of service at
retirement. The Company accrues for the estimated costs of these benefits through charges
to expense during the years that employees render service; however, the Company does not
fund this plan. |
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Treasury Stock: Shares of common stock that are repurchased are recorded in treasury
stock at cost. On the date of subsequent re-issuance, the treasury stock account is
reduced by the cost of such stock on a first-in, first-out basis. Treasury shares are not
deemed outstanding for earnings per share calculations. |
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Service Charges and Fee Income: Service charges and fee income which are not deferred
are recorded on an accrual basis when earned. |
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Fair Values of Financial Instruments: The following methods and assumptions were used by
the Company in estimating the fair value of its financial instruments: |
Cash and Due from Banks, Short-Term Investments, Accrued Interest Receivable and
Mortgagors and Investors Escrow Accounts - The carrying amount is a reasonable
estimate of fair value.
Securities - Fair values, excluding FHLBB stock, are based on quoted market prices or
dealer quotes, if available. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities and pricing models that
consider standard input factors such as observable market data, benchmark yields,
interest rate volatilities, broker/dealer quotes, credit spreads and new issue data.
The carrying value of FHLBB stock approximates fair value based on the redemption
provisions of the FHLBB.
Loans Receivable - The fair value of loans is estimated by discounting the future
cash flows using current market interest rates at which similar loans would be made
to borrowers with similar credit ratings and for the same remaining maturities as of
the measurement date. Fair
78
value for non-performing loans are estimated using discounted cash flow analyses or
collateral values, where applicable.
Deposits - The fair value of demand, NOW, savings and money market deposits is the
amount payable on demand at the reporting date. The fair value of time deposits is
estimated using a discounted cash flow calculation that applies market interest rates
being offered for deposits of similar remaining maturities to a schedule of
aggregated expected maturities on such deposits.
Advances from the Federal Home Loan Bank of Boston - The fair value of the advances
is estimated using a discounted cash flow calculation that applies current FHLBB
interest rates for advances of similar maturity to a schedule of remaining maturities
of such advances.
Off-Balance Sheet Instruments - Fair values for off-balance sheet lending commitments
are based on fees currently charged to enter into similar agreements, taking into
account the remaining terms of the agreements and the counterparties credit
standings.
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Earnings per Common Share: Basic earnings per share excludes dilution and is computed by
dividing income available to common stockholders by the weighted-average number of shares
outstanding for the period. If rights to dividends on unvested options/awards are
non-forfeitable, these unvested options/awards are considered outstanding in the
computation of basic earnings per share. During the year ended December 31, 2009, as a
result of new accounting guidance, the Company included unvested restricted stock in the
calculation of basic earnings per share. No adjustment has been made to 2008 and 2007
earnings per share as the effect was immaterial. Diluted earnings per share reflects the
potential dilution that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. |
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Unearned Employee Stock Ownership Plan (ESOP) shares are not considered outstanding for
calculating basic and diluted earnings per common share. ESOP shares committed to be
released are considered to be outstanding for purposes of the earnings per share
computation. ESOP shares that have not been legally released, but that relate to employee
services rendered during an accounting period (interim or annual) ending before the
related debt service payment is made, is considered committed to be released. |
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ESOP Expenses: Unearned ESOP shares are shown as a reduction of stockholders equity and
presented as unearned compensation ESOP. During the period the ESOP shares are
committed to be released, the Company recognizes compensation cost equal to the average
fair value of the ESOP shares. When the shares are released, unearned common shares held
by the ESOP are reduced by the cost of the ESOP shares released and the differential
between the fair value and the cost is charged to additional paid-in capital. The loan
receivable from the ESOP to the Company is not reported as an asset nor is the debt of
the ESOP reported as a liability in the Companys consolidated financial statements. |
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Share-Based Compensation: The Company measures the cost of employee services received in
exchange for an award of equity instruments based on the grant date fair value of the
award. These costs are recognized on a straight-line basis over the vesting period during
which an employee is required to provide services in exchange for the award, the
requisite service period. The Company uses the Black-Scholes option pricing model to
estimate the fair value of stock options granted. When determining the estimated fair
value of stock options granted, the Company utilizes various assumptions regarding the
expected volatility of the stock price, estimated forfeitures using historical data on
employee terminations, the risk-free interest rate for periods within the contractual
life of the stock option, and the expected dividend yield that the Company expects over
the expected life of the options granted. Reductions in compensation expense associated
with forfeited options are estimated at the date of grant, and this estimated forfeiture
rate is adjusted monthly based on actual forfeiture experience. The Company measures the
fair value of the restricted stock using the closing market price of the Companys common
stock on the date of grant. The Company expenses the grant date fair value of the
Companys stock options and restricted stock with a corresponding increase in equity. |
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Segment Information: As a community oriented financial institution, substantially all of
the Companys operations involve the delivery of loan and deposit products to customers.
Management makes operating decisions and assesses performance based on an ongoing review
of these community-banking operations, which constitutes the Companys only operating
segment for financial reporting purposes. |
79
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Note 3. |
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RECENT ACCOUNTING PRONOUNCEMENTS |
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Accounting Standards Codification, ASC Topic 105: In June 2009, the Financial
Accounting Standards Board (FASB) issued Financial Accounting Standard No. 168, The
FASB Accounting Standards CodificationTM (ASC) and the Hierarchy of Generally
Accepted Accounting Principles a replacement of FASB Statement No. 162 (FAS 168). In
addition, in June 2009, the FASB issued Accounting Standards Update (ASU) No. 2009-01,
ASC Topic 205 Generally Accepted Accounting Principles amendments based on
Statement of Financial Accounting Standards No. 168 The FASB Accounting Standards
CodificationTM and the Hierarchy of Generally Accepted Accounting Principles
(ASU 2009-1). Both FAS 168 and ASU 2009-1 recognize the FASB Accounting Standards
CodificationTM as the source of authoritative U.S. generally accepted
accounting principles to be utilized by nongovernmental entities. FAS 168 and ASU 2009-1
are effective for interim and annual periods ending after September 15, 2009. The Company
adopted this statement as of September 30, 2009 and such adoption did not have an impact
on the results of operations or financial position. |
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Subsequent Events, ASC Topic 855: In May 2009, the FASB issued ASC topic 855 Subsequent
Events. ASC topic 855 establishes general standards of accounting for and disclosure of
events that occur after the balance sheet date but before financial statements are issued
or are available to be issued. The statement sets forth (1) the period after the balance
sheet date during which management of a reporting entity should evaluate events or
transactions that may occur for potential recognition or disclosure in the financial
statements; (2) the circumstances under which an entity should recognize events or
transactions occurring after the balance sheet date in its financial statements and (3)
the disclosure that an entity should make about events or transactions that occurred
after the balance sheet date. ASC topic 855 was effective for fiscal years and interim
periods ending after June 15, 2009, and shall be applied prospectively. The Company
adopted this statement as of June 30, 2009 and such adoption did not have an impact on
the results of operations or financial position. |
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Investments Debt and Equity Securities, ASC Topic 320-10: In April 2009, the FASB
issued guidance on Recognition and Presentation of Other-Than-Temporary Impairments which
amends the other-than-temporary impairment guidance in U.S. GAAP for debt securities to
make the guidance more operational and to improve the presentation and disclosure of
other-than-temporary impairments on debt and equity securities in the financial
statements. ASC 320 does not amend existing recognition and measurement guidance related
to other-than-temporary impairments of equity securities. ASC 320 was effective for
interim and annual reporting periods ending after June 15, 2009. The Company applied the
guidance contained in ASC 320 effective in January 2009 resulting in a cumulative effect
adjustment of $1.0 million ($1.6 million before taxes) relating to two corporate debt
securities that increased retained earnings and increased accumulated other comprehensive
loss. |
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Fair Value Measurements and Disclosures, ASC Topic 820: In April 2009, the FASB issued
guidance on Determining Fair Value When the Volume and Level of Activity for the Asset or
Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.
It provides additional guidance for estimating fair value when the volume and level of
activity for the asset or liability have significantly decreased and also includes
guidance on identifying circumstances that indicate a transaction is not orderly. ASC 820
emphasizes that even if there has been a significant decrease in the volume and level of
activity for the asset or liability and regardless of the valuation technique(s) used,
the objective of a fair value measurement remains the same. Fair value is the price that
would be received to sell an asset or paid to transfer a liability in an orderly
transaction (that is, not a forced liquidation or distressed sale) between market
participants at the measurement date under current market conditions. ASC 820 was
effective for interim and annual reporting periods ending after June 15, 2009, and shall
be applied prospectively. The adoption of this pronouncement did not have a material
impact on the Companys consolidated financial statements. |
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In January 2010, the FASB issued ASU No 2010-06. The update provides amendments to ASC
topic 820 that will provide more robust disclosures about (1) the different classes of
assets and liabilities measured at fair value, (2) the valuation techniques and inputs
used, (3) the activity in Level 3 fair value measurements, and (4) the transfers between
Levels 1, 2, and 3. |
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Compensation Retirement Benefits, ASC Topic 715: In December 2008, FASB revised the
Employers Disclosures about Postretirement Benefit Plan Assets (ASC Topic 715-20) to
provide guidance on an employers disclosures about plan assets of a defined benefit
pension or other
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postretirement plan. These updated disclosure requirements became effective for the
Company for the fiscal year ending December 31, 2009 and are included in the consolidated
financial statements. |
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Business Combinations, ASC Topic 805: On January 1, 2009, guidance for Business
Combinations (ASC Topic 805) became effective. The guidance requires that all business
combinations be accounted for under the acquisition method. The guidance requires that
the assets, liabilities and noncontrolling interests of a business combination be
measured at fair value at the acquisition date. The acquisition date is defined as the
date an acquirer obtains control of the entity, which is typically the closing date. The
guidance requires that all acquisition and restructuring related costs be expensed as
incurred and that any contingent consideration be measured at fair value and recorded as
either equity or a liability with the liability remeasured at fair value in subsequent
periods. The adoption of this pronouncement did not have a material impact on the
Companys consolidated financial statements. |
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Transfers of Financial Assets, Topic 860: In June 2009, the FASB issued ASU No. 2009-16
which requires entities to provide more information about sales of securitized financial
assets and similar transactions, particularly if the seller retains some risk in the
assets. The guidance eliminates the concept of a qualifying special-purpose entity,
changes the requirements for the derecognition of financial assets, and enhances the
disclosure requirements for sellers of the assets. This guidance will be effective for
the fiscal year beginning after November 15, 2009. The adoption of this pronouncement is
not expected to have a material impact on the Companys consolidated financial
statements. |
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Note 4. |
|
EARNINGS PER SHARE |
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|
The following tables sets forth the calculation of basic and diluted earnings per
share for the years ended December 31, 2009, 2008 and 2007: |
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|
Years Ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
|
|
Net income (loss) available to common stockholders |
|
$ |
9,732 |
|
|
$ |
(1,587 |
) |
|
$ |
8,328 |
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|
|
|
|
|
|
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|
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|
|
Weighted-average basic shares outstanding |
|
|
18,469 |
|
|
|
18,428 |
|
|
|
18,751 |
|
Effect of dilutive options |
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of common shares outstanding
used to calculate diluted earnings per common
share |
|
|
18,474 |
|
|
|
18,428 |
|
|
|
18,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
Treasury shares and unallocated common shares held by the ESOP are not included in the
weighted-average number of common shares outstanding for either basic or diluted earnings
per share calculations. For the year ended December 31, 2009, unvested restricted shares
were included in the weighted-average number of common shares outstanding for basic and
diluted earnings per share. For the years ended December 31, 2008 and 2007, unvested
restricted shares are not included in the weighted-average number of common shares
outstanding for basic and diluted earnings per share. The number of shares of restricted
stock issued that were included in the calculations was 129,000 as of December 31, 2009.
The Companys common stock equivalents relate solely to stock options issued and
outstanding and unvested restricted stock awards. For the year ended December 31, 2009,
options to purchase 445,875 of common stock at exercise prices ranging from $9.24 to
$17.77 were not considered in the computation of potential common shares for the purpose
of diluted EPS as the shares were anti-dilutive based on the Companys average market
price during the year. At December 31, 2008, options to purchase 342,125 shares of common
stock at exercise prices ranging from $11.98 to $17.77 were not considered in the
computation of potential common shares for the purpose of diluted EPS, since the shares
were antidilutive due to the Companys net loss for the period. At December 31, 2007,
options to purchase 213,500 shares of common stock at exercise prices ranging from $14.35
to $17.77 were not considered in the computation of potential common shares for the
purpose of diluted EPS, since the exercise prices of the options were greater than the
average market price of the stock for the period and the effect of inclusion would be
anti-dilutive. |
81
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Note 5. |
|
FAIR VALUE MEASUREMENT |
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The Company groups its assets and liabilities generally measured at fair value in
three levels based on the markets in which the assets and liabilities are traded and the
reliability of the assumptions used to determine fair value. The fair value hierarchy is
as follows: |
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Level 1: |
|
Quoted prices are available in active markets for identical
investments as of the reporting date. The quoted price is not adjusted because of
the size of the position relative to trading volume. |
|
|
Level 2: |
|
Pricing inputs are observable for the asset or liability, either
directly or indirectly but are not the same as those used in Level 1. Fair value is
determined through the use of models or other valuation methodologies. |
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|
Level 3: |
|
Pricing inputs are unobservable for the assets and liabilities and
include situations where there is little, if any, market activity and the
determination of fair value requires significant judgment or estimation. |
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|
The inputs used to measure fair value may fall into different levels of the fair
value hierarchy. In such instances, the determination of which category within
the fair value hierarchy is appropriate for any given asset or liability is based
on the lowest level of input that is significant to the fair value of the asset or
liability. |
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Items Measured at Fair Value on a Recurring Basis: |
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The following valuation methodologies are used for assets and liabilities recorded at
fair value on a recurring basis: |
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Available for Sale Securities: Investment securities available for sale are
recorded at fair value on a recurring basis. Fair value measurement is based upon quoted
prices, if available. If quoted prices are not available, fair values are measured using
independent pricing models. Level 1 securities are those traded on active markets for
identical securities including U.S. treasury debt securities, equity securities and
mutual funds. Level 2 securities include U.S. government agency obligations, U.S.
government-sponsored enterprises, mortgage-backed securities, corporate and other debt
securities. Level 3 securities include private placement securities and thinly traded
equity securities. |
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Other Liabilities: The Company records deferred director compensation and
supplemental savings and retirement plans at fair value based upon Level 1 quoted market
prices. |
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Assets and Liabilities Recorded at Fair Value on a Recurring Basis: |
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements |
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|
|
At December 31, 2009 |
|
|
|
|
|
|
|
Quoted |
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in |
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|
|
|
|
|
|
|
|
|
|
|
|
Active |
|
|
|
|
|
|
|
|
|
|
|
|
|
Markets for |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|
|
Identical |
|
|
Observable |
|
|
Unobservable |
|
|
|
Total |
|
|
Assets |
|
|
Inputs |
|
|
Inputs |
|
|
|
Fair Value |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
|
(In thousands) |
|
Available for Sale Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and government-sponsored enterprise obligations |
|
$ |
7,052 |
|
|
$ |
2,018 |
|
|
$ |
5,034 |
|
|
$ |
|
|
Residential mortgage-backed securities |
|
|
75,967 |
|
|
|
|
|
|
|
75,967 |
|
|
|
|
|
Corporate debt securities |
|
|
4,656 |
|
|
|
|
|
|
|
4,656 |
|
|
|
|
|
Other debt securities |
|
|
731 |
|
|
|
|
|
|
|
731 |
|
|
|
|
|
Marketable equity securities |
|
|
14,345 |
|
|
|
14,272 |
|
|
|
|
|
|
|
73 |
|
|
Total Assets Measured at Fair Value |
|
$ |
102,751 |
|
|
$ |
16,290 |
|
|
$ |
86,388 |
|
|
$ |
73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements |
|
|
|
At December 31, 2008 |
|
|
|
|
|
|
|
Quoted |
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in |
|
|
|
|
|
|
|
|
|
|
|
|
|
Active |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|
|
Markets for |
|
|
Observable |
|
|
Unobservable |
|
|
|
Total |
|
|
Identical Assets |
|
|
Inputs |
|
|
Inputs |
|
|
|
Fair Value |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
|
(In thousands) |
|
Available for Sale Securities: |
|
$ |
141,250 |
|
|
$ |
14,958 |
|
|
$ |
124,178 |
|
|
$ |
2,114 |
|
Total Assets Measured at Fair Value |
|
$ |
141,250 |
|
|
$ |
14,958 |
|
|
$ |
124,178 |
|
|
$ |
2,114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Liabilities |
|
$ |
338 |
|
|
$ |
338 |
|
|
$ |
|
|
|
$ |
|
|
|
Total Liabilities Measured at Fair Value |
|
$ |
338 |
|
|
$ |
338 |
|
|
$ |
|
|
|
$ |
|
|
|
83
|
|
The changes in Level 3 assets measured at fair value on a recurring basis are summarized
in the following table for the years ended December 31, 2009 and 2008: |
|
|
|
|
|
|
|
Assets |
|
|
|
Securities |
|
|
|
Available for |
|
|
|
Sale |
|
|
|
(In thousands) |
|
Balance as of December 31, 2007 |
|
$ |
308 |
|
Total gains or losses (realized/unrealized): |
|
|
|
|
Included in earnings-realized |
|
|
|
|
Included in earnings-unrealized |
|
|
(1,073 |
) |
Included in other comprehensive income |
|
|
446 |
|
Purchases, sales, issuances and settlements, net |
|
|
(7 |
) |
Transfers in and/or out of Level 3 |
|
|
2,440 |
|
|
|
|
|
Balance as of December 31, 2008 |
|
|
2,114 |
|
|
|
|
|
Total gains or losses (realized/unrealized): |
|
|
|
|
Included in earnings-realized |
|
|
|
|
Included in earnings-unrealized |
|
|
|
|
Included in other comprehensive income |
|
|
43 |
|
Purchases, sales, issuances and settlements, net |
|
|
|
|
Transfers in and/or out of Level 3 |
|
|
(2,084 |
) |
|
|
|
|
Balance as of December 31, 2009 |
|
$ |
73 |
|
|
|
|
|
Change in unrealized losses relating to instruments still held at
December 31, 2009 |
|
$ |
43 |
|
Change in unrealized gains relating to instruments still held at
December 31, 2008 |
|
|
1,073 |
|
|
|
|
Items Measured at Fair Value on a Non-Recurring Basis: |
|
|
The following is a description of the valuation methodologies used for certain assets
that are recorded at fair value on a non-recurring basis. There were no liabilities
recorded at fair value on a non-recurring basis. |
|
|
The Company may also be required, from time to time, to measure certain other assets on a
nonrecurring basis in accordance with generally accepted accounting principles. These
adjustments to fair value usually result from application of lower-of-cost-or-market
accounting or write-downs of individual assets. |
|
|
Impaired Loans: Accounting standards require that a creditor recognize the
impairment of a loan if the present value of expected future cash flows discounted at the
loans effective interest rate (or, alternatively, the observable market price of the
loan or the fair value of the collateral) is less than
the recorded investment in the impaired loan. Non-recurring fair value adjustments to
collateral dependent loans are recorded, when necessary, to reflect partial write-downs
based upon observable market price or current appraised value of the collateral. The
Company records impaired loans as non-recurring Level 3 fair value measurements. |
84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or for the Year Ended December 31, 2009 |
|
|
|
|
|
|
|
Quoted Prices |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Markets for |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|
|
|
|
|
Identical |
|
|
Observable |
|
|
Unobservable |
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
Inputs |
|
|
Inputs |
|
|
|
|
|
|
Total |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Total Gains/(Losses) |
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
Impaired Loans |
|
$ |
5,473 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
5,473 |
|
|
$ |
(381 |
) |
|
Total Assets Measured at Fair Value |
|
$ |
5,473 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
5,473 |
|
|
$ |
(381 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or for the Year Ended December 31, 2008 |
|
|
|
|
|
|
|
Quoted |
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in |
|
|
|
|
|
|
|
|
|
|
|
|
|
Active |
|
|
|
|
|
|
|
|
|
|
|
|
|
Markets for |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|
|
Identical |
|
|
Observable |
|
|
Unobservable |
|
|
|
|
|
|
|
Assets |
|
|
Inputs |
|
|
Inputs |
|
|
|
Total |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
|
(In thousands) |
|
Impaired Loans |
|
$ |
9,962 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
9,962 |
|
|
Total Assets Measured at Fair Value |
|
$ |
9,962 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
9,962 |
|
|
|
|
Fair Value of Financial Instruments |
|
|
As of December 31, 2009 and 2008, the carrying value and estimated fair values of the
Companys financial instruments are as follows. Certain financial instruments and all
nonfinancial instruments are exempt from disclosure requirements. Accordingly, the
aggregate fair value amounts presented herein may not necessarily represent the
underlying fair value of the Company. |
85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
Carrying |
|
|
|
|
|
|
Carrying |
|
|
|
|
|
|
Value |
|
|
Fair Value |
|
|
Value |
|
|
Fair Value |
|
|
|
(In thousands) |
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
19,307 |
|
|
$ |
19,307 |
|
|
$ |
14,901 |
|
|
$ |
14,901 |
|
Available for sale securities |
|
|
102,751 |
|
|
|
102,751 |
|
|
|
141,250 |
|
|
|
141,250 |
|
Held to maturity securities |
|
|
19,074 |
|
|
|
20,011 |
|
|
|
24,138 |
|
|
|
25,069 |
|
Loans receivable-net |
|
|
1,361,019 |
|
|
|
1,360,789 |
|
|
|
1,291,791 |
|
|
|
1,286,887 |
|
FHLBB stock |
|
|
17,007 |
|
|
|
17,007 |
|
|
|
17,007 |
|
|
|
17,007 |
|
Accrued interest receivable |
|
|
4,287 |
|
|
|
4,287 |
|
|
|
4,636 |
|
|
|
4,636 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regular savings |
|
|
143,601 |
|
|
|
143,601 |
|
|
|
121,527 |
|
|
|
121,527 |
|
Money market and investment savings |
|
|
234,737 |
|
|
|
234,737 |
|
|
|
188,110 |
|
|
|
188,110 |
|
Demand and NOW |
|
|
258,583 |
|
|
|
258,583 |
|
|
|
203,056 |
|
|
|
203,056 |
|
Club accounts |
|
|
247 |
|
|
|
247 |
|
|
|
227 |
|
|
|
227 |
|
Time deposits |
|
|
491,940 |
|
|
|
498,647 |
|
|
|
529,588 |
|
|
|
538,262 |
|
Mortgagors and investors
escrow accounts |
|
|
6,385 |
|
|
|
6,385 |
|
|
|
6,077 |
|
|
|
6,077 |
|
Advances from the FHLBB |
|
|
263,802 |
|
|
|
276,619 |
|
|
|
322,882 |
|
|
|
335,043 |
|
Note 6. RESTRICTIONS ON CASH AND DUE FROM BANKS
|
|
The Company is required to maintain a percentage of transaction account balances on
deposit in non-interest-earning reserves with the Federal Reserve Bank that was offset by
the Companys average vault cash. As of December 31, 2009 and 2008, the Company was
required to have cash and liquid assets of approximately $3.2 million and $2.0 million,
respectively, to meet these requirements. The Company maintains a compensating balance of
$600,000 to partially offset service fees charged by the Federal Reserve Bank. |
86
Note 7. INVESTMENT SECURITIES
|
|
The amortized cost, gross unrealized gains, gross unrealized losses and fair
values of available for sale investment securities at December 31, 2009 and 2008 are as
follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Unrealized |
|
|
Gross Unrealized |
|
|
|
|
|
|
Amortized Cost |
|
|
Gains |
|
|
Losses |
|
|
Fair Value |
|
December 31, 2009 |
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and
government-sponsored enterprise
obligations |
|
$ |
7,017 |
|
|
$ |
36 |
|
|
$ |
1 |
|
|
$ |
7,052 |
|
Government-sponsored residential
mortgage-backed securities |
|
|
72,537 |
|
|
|
3,431 |
|
|
|
1 |
|
|
|
75,967 |
|
Corporate debt securities |
|
|
5,879 |
|
|
|
|
|
|
|
1,223 |
|
|
|
4,656 |
|
Other debt securities |
|
|
722 |
|
|
|
9 |
|
|
|
|
|
|
|
731 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities |
|
|
86,155 |
|
|
|
3,476 |
|
|
|
1,225 |
|
|
|
88,406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable equity securities, by
sector: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banks |
|
|
1,256 |
|
|
|
2,470 |
|
|
|
173 |
|
|
|
3,553 |
|
Consumer and household products |
|
|
839 |
|
|
|
40 |
|
|
|
17 |
|
|
|
862 |
|
Food and beverage service |
|
|
948 |
|
|
|
158 |
|
|
|
41 |
|
|
|
1,065 |
|
Government-sponsored enterprises |
|
|
284 |
|
|
|
217 |
|
|
|
|
|
|
|
501 |
|
Healthcare/pharmaceutical |
|
|
387 |
|
|
|
3 |
|
|
|
19 |
|
|
|
371 |
|
Industrial |
|
|
639 |
|
|
|
134 |
|
|
|
13 |
|
|
|
760 |
|
Integrated utilities |
|
|
742 |
|
|
|
69 |
|
|
|
|
|
|
|
811 |
|
Miscellaneous |
|
|
1,030 |
|
|
|
263 |
|
|
|
6 |
|
|
|
1,287 |
|
Mutual funds |
|
|
2,621 |
|
|
|
62 |
|
|
|
|
|
|
|
2,683 |
|
Oil and gas |
|
|
754 |
|
|
|
353 |
|
|
|
12 |
|
|
|
1,095 |
|
Technology/Semiconductor |
|
|
342 |
|
|
|
173 |
|
|
|
|
|
|
|
515 |
|
Telecommunications |
|
|
354 |
|
|
|
|
|
|
|
15 |
|
|
|
339 |
|
Transportation |
|
|
313 |
|
|
|
190 |
|
|
|
|
|
|
|
503 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total marketable equity securities |
|
|
10,509 |
|
|
|
4,132 |
|
|
|
296 |
|
|
|
14,345 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale |
|
$ |
96,664 |
|
|
$ |
7,608 |
|
|
$ |
1,521 |
|
|
$ |
102,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009, the net unrealized gain on securities available for sale of $6.1
million, net of income taxes of $2.1 million or $4.0 million, is included in accumulated
other comprehensive (loss) income. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Unrealized |
|
|
Gross Unrealized |
|
|
|
|
|
|
Amortized Cost |
|
|
Gains |
|
|
Losses |
|
|
Fair Value |
|
December 31, 2009 |
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Held to maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored
residential
mortgage-backed |
|
$ |
19,074 |
|
|
$ |
937 |
|
|
$ |
|
|
|
$ |
20,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Unrealized |
|
|
Gross Unrealized |
|
|
|
|
|
|
Amortized Cost |
|
|
Gains |
|
|
Losses |
|
|
Fair Value |
|
December 31, 2008 |
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and
government-sponsored enterprise
obligations |
|
$ |
2,031 |
|
|
$ |
17 |
|
|
$ |
|
|
|
$ |
2,048 |
|
Mortgage-backed securities |
|
|
117,517 |
|
|
|
3,222 |
|
|
|
344 |
|
|
|
120,395 |
|
Corporate debt securities |
|
|
4,831 |
|
|
|
56 |
|
|
|
|
|
|
|
4,887 |
|
Other debt securities |
|
|
725 |
|
|
|
14 |
|
|
|
|
|
|
|
739 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities |
|
|
125,104 |
|
|
|
3,309 |
|
|
|
344 |
|
|
|
128,069 |
|
Marketable equity securities |
|
|
10,437 |
|
|
|
3,011 |
|
|
|
508 |
|
|
|
12,940 |
|
Other equity securities |
|
|
241 |
|
|
|
|
|
|
|
|
|
|
|
241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale |
|
$ |
135,782 |
|
|
$ |
6,320 |
|
|
$ |
852 |
|
|
$ |
141,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Unrealized |
|
|
Gross Unrealized |
|
|
|
|
|
|
Amortized Cost |
|
|
Gains |
|
|
Losses |
|
|
Fair Value |
|
December 31, 2008 |
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Held to maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored
residential
mortgage-backed |
|
$ |
24,138 |
|
|
$ |
931 |
|
|
$ |
|
|
|
$ |
25,069 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amortized cost and fair value of debt securities at December 31, 2009 by contractual
maturities are presented below. Actual maturities may differ from contractual maturities
because the securities may be called or repaid without any penalties. Because
mortgage-backed securities require periodic principal paydowns, they are not included in
the maturity categories in the following maturity summary. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale |
|
|
Held to Maturity |
|
|
|
Amortized Cost |
|
|
Fair Value |
|
|
Amortized Cost |
|
|
Fair Value |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 1 year |
|
$ |
2,019 |
|
|
$ |
2,018 |
|
|
$ |
|
|
|
$ |
|
|
After 1 year through 5 years |
|
|
8,050 |
|
|
|
8,006 |
|
|
|
|
|
|
|
|
|
After 5 years through 10 years |
|
|
722 |
|
|
|
731 |
|
|
|
|
|
|
|
|
|
After 10 years |
|
|
2,827 |
|
|
|
1,684 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,618 |
|
|
|
12,439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
|
72,537 |
|
|
|
75,967 |
|
|
|
19,074 |
|
|
|
20,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
86,155 |
|
|
$ |
88,406 |
|
|
$ |
19,074 |
|
|
$ |
20,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009 and 2008, securities with a fair value of $2.0 million were pledged
to secure public deposits and U.S. Treasury tax and loan payments. |
|
|
|
For the years ended December 31, 2009, 2008 and 2007, gross gains of $936,000, $689,000
and $754,000, respectively, were realized on the sale of available for sale securities.
Gross losses realized on the sale of available for sale securities were negligible in
2009 and were $308,000 and $246,000 for 2008 and 2007, respectively. |
|
|
|
As of December 31, 2009 and 2008, the Company did not own any investment or
mortgage-backed securities of a single issuer, other than securities guaranteed by the
U.S. Government or government- sponsored enterprises, which had an aggregate book value in excess of 10% of the
Companys stockholders equity.
|
88
|
|
The following table summarizes gross unrealized losses and fair value, aggregated by
investment category and length of time the investments have been in a continuous
unrealized loss position, at December 31, 2009 and 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months |
|
|
12 Months or More |
|
|
Total |
|
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
|
Value |
|
|
Loss |
|
|
Value |
|
|
Loss |
|
|
Value |
|
|
Loss |
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
Available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and
government-sponsored
enterprises |
|
$ |
2,018 |
|
|
$ |
1 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2,018 |
|
|
$ |
1 |
|
Government-sponsored
residential mortgage-backed
securities |
|
|
|
|
|
|
|
|
|
|
58 |
|
|
|
1 |
|
|
|
58 |
|
|
|
1 |
|
Corporate debt |
|
|
|
|
|
|
|
|
|
|
4,556 |
|
|
|
1,223 |
|
|
|
4,556 |
|
|
|
1,223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities |
|
|
2,018 |
|
|
|
1 |
|
|
|
4,614 |
|
|
|
1,224 |
|
|
|
6,632 |
|
|
|
1,225 |
|
Marketable equity securities |
|
|
1,097 |
|
|
|
184 |
|
|
|
1,099 |
|
|
|
112 |
|
|
|
2,196 |
|
|
|
296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,115 |
|
|
$ |
185 |
|
|
$ |
5,713 |
|
|
$ |
1,336 |
|
|
$ |
8,828 |
|
|
$ |
1,521 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months |
|
|
12 Months or More |
|
|
Total |
|
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
|
Value |
|
|
Loss |
|
|
Value |
|
|
Loss |
|
|
Value |
|
|
Loss |
|
December 31, 2008 |
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
Available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgage-backed
securities |
|
$ |
13,188 |
|
|
$ |
331 |
|
|
$ |
368 |
|
|
$ |
13 |
|
|
$ |
13,556 |
|
|
$ |
344 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities |
|
|
13,188 |
|
|
|
331 |
|
|
|
368 |
|
|
|
13 |
|
|
|
13,556 |
|
|
|
344 |
|
Marketable equity
securities |
|
|
4,135 |
|
|
|
460 |
|
|
|
44 |
|
|
|
48 |
|
|
|
4,179 |
|
|
|
508 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
17,323 |
|
|
$ |
791 |
|
|
$ |
412 |
|
|
$ |
61 |
|
|
$ |
17,735 |
|
|
$ |
852 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no held to maturity securities with unrealized losses at December 31, 2009 or
2008. |
|
|
|
Of the securities summarized above as of December 31, 2009, 9 issues have unrealized
losses for less than twelve months and 13 issues had unrealized losses for twelve months
or more. As of December 31, 2008, 50 issues had unrealized losses for less than twelve
months and 7 issues had losses for twelve months or more. |
|
|
|
U.S. Government and government-sponsored enterprises and Mortgage-backed securities. The
unrealized losses on the Companys U.S. Government and government-sponsored securities
were caused by increases in the rate spread to comparable treasury securities. The
Company does not expect these securities to settle at a price less than the amortized
cost basis of the investments. Because the Company does not intend to sell the
investments and it is not more likely than not that the Company will be required to sell
the investments before the recovery of their amortized cost basis, which may be maturity,
the Company does not consider these investments to be other-than-temporarily impaired at
December 31, 2009. |
|
|
|
Corporate Debt Securities. The unrealized losses on corporate debt securities relate to
one AA+ rated corporate bond and one pooled trust preferred security. The unrealized loss
on the corporate bond was caused by the low interest rate environment because it floats
quarterly to three month LIBOR. The unrealized loss on the Preferred Term Security
XXVIII, Ltd. (PRETSL XXVIII) investment was caused by the low interest rate environment
because it floats quarterly to three month LIBOR. No loss of principal or break in yield
is projected. Based on the existing credit profile, management does not believe that
these investments will suffer from any credit related losses. Because the Company does not intend to sell the investments and it is not more
likely than not that the Company will be required to sell the investments before recovery
of their amortized cost basis, which may be maturity, the Company does not consider these
investments to be other-than-temporarily impaired at December 31, 2009. |
89
|
|
Marketable Equity Securities. The Companys investments in marketable equity securities
consist of common stock, preferred stock and mutual funds. The unrealized losses are
spread out among several industries with no concentration in any one security. Management
evaluated the near-term prospects of the issuers and the Companys ability and intent to
hold the investments for a reasonable period of time sufficient for an anticipated
recovery of fair value. The Company does not consider these investments to be
other-than-temporarily impaired at December 31, 2009. |
|
|
|
During the year ended December 31, 2009, the Company recorded an other-than-temporary
impairment charge of $65,000 related to one mutual fund. The charge for the impairment
was computed using the closing price of the security as of the date of impairment. The
Companys remaining investment in this mutual fund was $1.4 million with a $55,000
unrealized gain at December 31, 2009. During the year ended December 31, 2009, the
Company recorded an other-than-temporary impairment charge of $297,000 related to five
common stock securities. The charge for the impairment was computed using the closing
prices of the securities as of the dates of impairment. The Companys remaining
investment in these five common stock securities was $648,000 with a net $133,000
unrealized loss at December 31, 2009. |
|
|
|
The Company will continue to review its entire portfolio for other-than-temporarily
impaired securities with additional attention being given to high risk securities such as
the one pooled trust preferred security that the Company owns. |
|
|
|
During the year ended December 31, 2008, the Company recorded an other-than-temporary
impairment charge of $11.6 million related to the preferred stock of Freddie Mac and
Fannie Mae as a result of actions taken in the third quarter of 2008 to place those
agencies into conservatorship. The Companys remaining investment in these securities was
$283,000 with no unrealized gain or loss at December 31, 2008. During the year ended
December 31, 2008, the Company recorded an other-than-temporary impairment charge of $1.1
million related to one AAA rated pooled trust preferred security. The charge for the
impairment was based on a Level 3 price for the pooled trust preferred security as of the
date of the impairment. The Companys remaining investment in this pooled trust preferred
security was $1.8 million. During the year ended December 31, 2008, the Company recorded
an other-than-temporary impairment charge of $587,000 related to one mutual fund. The
charge for the impairment was computed using the closing price of the security as of the
date of the impairment. The Companys remaining investment in this mutual fund was $1.7
million with no unrealized gain or loss at December 31, 2008. During the year ended
December 31, 2008, the Company recorded an other-than-temporary impairment charge of
$493,000 related to one AAA rated corporate debt security. The charge for the impairment
was computed using the closing price of the security as of the date of the impairment.
The Companys remaining investment in this corporate debt security was $2.4 million with
no unrealized gain or loss at December 31, 2008. During the year ended December 31, 2008,
we recorded an other-than-temporary impairment charge of $1.1 million related to eleven
common stock securities. The charge for the impairment was computed using the closing
prices of the securities as of the date of the impairment. The Companys remaining
investment in these eleven common stock securities was $1.7 million with no unrealized
gain of loss at December 31, 2008. |
90
Note 8. LOANS AND ALLOWANCE FOR LOAN LOSSES
|
|
A summary of the Companys loan portfolio at December 31, 2009 and 2008 is as
follows: |
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Real estate loans: |
|
|
|
|
|
|
|
|
Residential |
|
$ |
754,838 |
|
|
$ |
746,041 |
|
Commercial |
|
|
426,028 |
|
|
|
351,474 |
|
Construction |
|
|
71,078 |
|
|
|
89,099 |
|
|
|
|
|
|
|
|
Total real estate loans |
|
|
1,251,944 |
|
|
|
1,186,614 |
|
|
|
|
|
|
|
|
|
|
Commercial business loans |
|
|
113,240 |
|
|
|
106,684 |
|
Installment loans |
|
|
5,783 |
|
|
|
7,704 |
|
Collateral loans |
|
|
1,959 |
|
|
|
1,925 |
|
|
|
|
|
|
|
|
Total loans |
|
|
1,372,926 |
|
|
|
1,302,927 |
|
|
|
|
|
|
|
|
|
|
Net deferred loan costs and premiums |
|
|
632 |
|
|
|
1,417 |
|
Allowance for loan losses |
|
|
(12,539 |
) |
|
|
(12,553 |
) |
|
|
|
|
|
|
|
Loans net |
|
$ |
1,361,019 |
|
|
$ |
1,291,791 |
|
|
|
|
|
|
|
|
|
|
At December 31, 2009 and 2008, the unpaid principal balances of loans placed on
non-accrual status were $12.0 million and $10.1 million, respectively. If non-accrual
loans had been performing in accordance with their original terms, the Company would have
recorded $233,000, $237,000 and $53,000 in additional interest income during the years
ended December 31, 2009, 2008 and 2007, respectively. Company policy requires six months
of continuous payments in order for the loan to be removed from non-accrual status. As of
December 31, 2009 and 2008, there were no loans contractually past due 90 days or more
and still accruing interest. |
|
|
|
The following information relates to impaired loans as of and for the years ended
December 31, 2009, 2008 and 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Recorded investment in impaired loans
for which there is a related allowance for
loan losses |
|
$ |
5,854 |
|
|
$ |
2,840 |
|
|
$ |
489 |
|
Recorded investment in impaired loans for
which there is no related allowance for loan
losses |
|
|
6,192 |
|
|
|
7,595 |
|
|
|
1,080 |
|
|
|
|
|
|
|
|
|
|
|
Total impaired loans |
|
$ |
12,046 |
|
|
$ |
10,435 |
|
|
$ |
1,569 |
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance related to impaired loans |
|
$ |
381 |
|
|
$ |
473 |
|
|
$ |
155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average recorded investment in impaired loans |
|
$ |
13,356 |
|
|
$ |
5,358 |
|
|
$ |
1,493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income recognized on impaired loans
on a cash basis |
|
$ |
250 |
|
|
$ |
508 |
|
|
$ |
52 |
|
|
|
The Company has no commitments to lend additional funds to borrowers whose loans are
impaired. |
|
|
|
The Companys lending activities are conducted principally in Connecticut. The Company
grants single-family and multi-family residential loans, commercial loans and a variety
of consumer loans. In addition, the Company grants loans for the construction of
residential homes, residential developments and land development projects. The ultimate
repayment of these loans is dependent on the local economy and real estate market. |
91
|
|
Changes in the allowance for loan losses for the years ended December 31, 2009, 2008 and
2007 are as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Balance, beginning of year |
|
$ |
12,553 |
|
|
$ |
10,620 |
|
|
$ |
9,827 |
|
Provision for loan losses |
|
|
1,961 |
|
|
|
2,393 |
|
|
|
749 |
|
Loans charged-off |
|
|
(2,113 |
) |
|
|
(621 |
) |
|
|
(173 |
) |
Recoveries of loans previously
charged-off |
|
|
138 |
|
|
|
161 |
|
|
|
217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year |
|
$ |
12,539 |
|
|
$ |
12,553 |
|
|
$ |
10,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
In the normal course of business, the Company grants loans to executive officers,
Directors and other related parties. Changes in loans outstanding to such related parties
for the years ended December 31, 2009 and 2008 are as follows: |
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Balance, beginning of year |
|
$ |
4,050 |
|
|
$ |
3,808 |
|
Loans to related parties who terminated service
during the year |
|
|
(261 |
) |
|
|
|
|
Additional loans and advances |
|
|
868 |
|
|
|
3,026 |
|
Repayments |
|
|
(938 |
) |
|
|
(2,784 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year |
|
$ |
3,719 |
|
|
$ |
4,050 |
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009 and 2008, all related party loans were performing. |
|
|
|
Related party loans were made on the same terms as those for comparable loans and
transactions with unrelated parties, other than certain mortgage loans which were made to
employees with over one year of service with the Company which have rates 0.50% below
market rates at the time of origination. |
|
|
|
Loan Servicing |
|
|
|
The Company services certain loans for third parties. The aggregate of loans serviced for
others was $57.7 million and $15.8 million as of December 31, 2009 and 2008,
respectively. The balances of these loans are not included in the accompanying
consolidated statement of condition. |
|
|
|
The risks inherent in mortgage servicing assets relate primarily to changes in
prepayments that result from shifts in mortgage interest rates. The fair value of
servicing rights was determined using pretax internal rates of return ranging from 8.0%
to 10.0% and the Public Securities Association (PSA) Standard Prepayment model to
estimate prepayments on the portfolio with an average prepayment speed of 239%. |
92
|
|
The following summarizes mortgage servicing rights capitalized and amortized, along with
the aggregate activity in related valuation allowances: |
|
|
|
|
|
|
|
Year-ended December 31, 2009 |
|
|
|
(In thousands) |
|
Mortgage servicing rights: |
|
|
|
|
Balance at beginning of year |
|
$ |
68 |
|
Additions |
|
|
446 |
|
Disposals |
|
|
|
|
Amortization |
|
|
39 |
|
|
|
|
|
Balance at year end |
|
$ |
475 |
|
|
|
|
|
|
|
|
|
|
Fair value of mortgage servicing assets
at year end |
|
$ |
481 |
|
|
|
|
|
|
|
The outstanding mortgage servicing rights balance at December 31, 2008 and 2007 were
$68,000 and $94,000, respectively. |
Note 9. OTHER REAL ESTATE OWNED
|
|
Other real estate owned consists of $3.0 million of commercial real estate
properties and $38,000 of residential real estate properties, which are held for sale at
December 31, 2009. Other real estate owned expenses were $69,000 for the year ended
December 31, 2009. There was no other real estate owned at or during the years ended
December 31, 2008 and 2007. |
Note 10. PREMISES AND EQUIPMENT
|
|
Premises and equipment at December 31, 2009 and 2008 are summarized as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
Estimated |
|
|
|
2009 |
|
|
2008 |
|
|
Useful Life |
|
|
|
(In thousands) |
|
|
|
|
|
Land and improvements |
|
$ |
236 |
|
|
$ |
236 |
|
|
|
N/A |
|
Buildings |
|
|
15,675 |
|
|
|
15,029 |
|
|
39.5 years |
Furniture and equipment |
|
|
9,483 |
|
|
|
9,199 |
|
|
3 10 years |
Leasehold improvements |
|
|
3,762 |
|
|
|
3,750 |
|
|
5 10 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,156 |
|
|
|
28,214 |
|
|
|
|
|
Less accumulated depreciation
and amortization |
|
|
(13,293 |
) |
|
|
(11,809 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
15,863 |
|
|
$ |
16,405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense was $1.6 million, $1.5 million and $1.4 million for
the years ended December 31, 2009, 2008 and 2007, respectively. |
93
Note 11. DEPOSITS
Deposits at December 31, 2009 and 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Demand and NOW |
|
$ |
258,583 |
|
|
$ |
203,056 |
|
Regular savings |
|
|
143,601 |
|
|
|
121,527 |
|
Money market and investment savings |
|
|
234,737 |
|
|
|
188,110 |
|
Club accounts |
|
|
247 |
|
|
|
227 |
|
Time deposits |
|
|
491,940 |
|
|
|
529,588 |
|
|
|
|
|
|
|
|
|
|
$ |
1,129,108 |
|
|
$ |
1,042,508 |
|
|
|
|
|
|
|
|
Time deposits in denominations of $100,000 or more were $168.5 and $172.0 million as of
December 31, 2009 and 2008, respectively.
Contractual maturities of time deposits as of December 31, 2009 are summarized below:
|
|
|
|
|
|
|
(In thousands) |
|
2010 |
|
$ |
359,757 |
|
2011 |
|
|
85,916 |
|
2012 |
|
|
19,836 |
|
2013 |
|
|
13,852 |
|
2014 |
|
|
10,978 |
|
Thereafter |
|
|
1,601 |
|
|
|
|
|
|
|
$ |
491,940 |
|
|
|
|
|
Deposit accounts of officers, Directors, and other related parties aggregated $3.3
million and $2.3 million at December 31, 2009 and 2008, respectively.
A summary of interest expense by account type for the years ended December 31, 2009, 2008
and 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Non-time deposits |
|
$ |
3,101 |
|
|
$ |
5,552 |
|
|
$ |
4,158 |
|
Time deposits |
|
|
16,270 |
|
|
|
19,517 |
|
|
|
22,923 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
19,371 |
|
|
$ |
25,069 |
|
|
$ |
27,081 |
|
|
|
|
|
|
|
|
|
|
|
Note 12. FEDERAL HOME LOAN BANK BORROWINGS AND STOCK
The Bank is a member of the Federal Home Loan Bank of Boston (FHLBB). At December
31, 2009 and 2008, the Bank had access to a pre-approved secured line of credit with the
FHLBB of $10.0 million. In accordance with an agreement with the FHLBB, the qualified
collateral must be free and clear of liens, pledges and encumbrances. At December 31,
2009 and 2008, there were no advances outstanding under the line of credit.
Contractual maturities and weighted average rates of outstanding advances from the FHLBB
as of December 31, 2009 are summarized below:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
|
Amount |
|
|
Weighted-Average
Rate |
|
|
|
(Dollars in thousands) |
2010 |
|
$ |
40,170 |
|
|
|
2.78 |
% |
2011 |
|
|
73,320 |
|
|
|
3.70 |
|
2012 |
|
|
37,400 |
|
|
|
4.21 |
|
2013 |
|
|
63,000 |
|
|
|
4.12 |
|
2014 |
|
|
26,912 |
|
|
|
4.13 |
|
Thereafter |
|
|
23,000 |
|
|
|
4.12 |
|
|
|
|
|
|
|
|
|
|
|
$ |
263,802 |
|
|
|
3.81 |
% |
|
|
|
|
|
|
|
|
94
At
December 31, 2008, outstanding advances from the FHLBB were as
follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
Interest Rate |
|
|
Maturity Date |
|
2008 |
|
|
0.38 |
% |
|
January 2, 2009 |
|
$ |
66,000 |
|
|
3.80 |
% |
|
January 9, 2009 |
|
|
7,000 |
|
|
4.10 |
% |
|
July 9, 2009 |
|
|
7,000 |
|
|
4.18 |
% |
|
November 23, 2009 |
|
|
2,000 |
|
|
3.30 |
% |
|
May 27, 2010 |
|
|
5,000 |
|
|
4.28 |
% |
|
August 11, 2010 |
|
|
5,000 |
|
|
6.47 |
% |
|
September 8, 2010 |
|
|
362 |
|
|
4.95 |
% |
|
December 20, 2010 |
|
|
10,000 |
|
|
4.06 |
% |
|
December 21, 2010 |
|
|
5,000 |
|
|
3.57 |
% |
|
January 11, 2011 |
|
|
5,000 |
|
|
3.02 |
% |
|
February 15, 2011 |
|
|
5,000 |
|
|
3.78 |
% |
|
May 4, 2011 |
|
|
10,000 |
|
|
3.95 |
% |
|
June 13, 2011 |
|
|
2,320 |
|
|
3.95 |
% |
|
July 7, 2011 |
|
|
5,000 |
|
|
3.78 |
% |
|
July 18, 2011 |
|
|
5,000 |
|
|
4.52 |
% |
|
August 8, 2011 |
|
|
5,000 |
|
|
3.65 |
% |
|
September 12, 2011 |
|
|
7,000 |
|
|
4.15 |
% |
|
October 3, 2011 |
|
|
5,000 |
|
|
3.95 |
% |
|
October 3, 2011 |
|
|
7,000 |
|
|
3.42 |
% |
|
November 14, 2011 |
|
|
5,000 |
|
|
3.42 |
% |
|
November 28, 2011 |
|
|
7,000 |
|
|
3.01 |
% |
|
December 5, 2011 |
|
|
5,000 |
|
|
4.57 |
% |
|
August 20, 2012 |
|
|
8,000 |
|
|
4.09 |
% |
|
September 7, 2012 |
|
|
7,000 |
|
|
4.60 |
% |
|
October 1, 2012 |
|
|
5,000 |
|
|
3.37 |
% |
|
October 3, 2012 |
|
|
5,400 |
|
|
4.75 |
% |
|
November 23, 2012 |
|
|
2,000 |
|
|
4.14 |
% |
|
December 7, 2012 |
|
|
10,000 |
|
|
3.85 |
% |
|
January 11, 2013 |
|
|
5,000 |
|
|
3.59 |
% |
|
February 1, 2013 |
|
|
6,000 |
|
|
4.99 |
% |
|
May 16, 2013 |
|
|
10,000 |
|
|
3.89 |
% |
|
May 28, 2013 |
|
|
5,000 |
|
|
4.75 |
% |
|
July 5, 2013 |
|
|
5,000 |
|
|
4.37 |
% |
|
July 8, 2013 |
|
|
10,000 |
|
|
4.15 |
% |
|
November 14, 2013 |
|
|
5,000 |
|
|
3.89 |
% |
|
November 29, 2013 |
|
|
7,000 |
|
|
3.37 |
% |
|
December 5, 2013 |
|
|
10,000 |
|
|
4.78 |
% |
|
January 13, 2014 |
|
|
4,400 |
|
|
3.92 |
% |
|
March 10. 2014 |
|
|
1,600 |
|
95
|
|
|
|
|
|
|
|
|
Interest Rate |
|
|
Maturity Date |
|
2008 |
|
|
4.86 |
% |
|
March 17, 2014 |
|
|
7,800 |
|
|
4.18 |
% |
|
October 14, 2014 |
|
|
5,000 |
|
|
5.05 |
% |
|
May 18, 2015 |
|
|
5,000 |
|
|
3.69 |
% |
|
September 11, 2017 |
|
|
5,000 |
|
|
4.39 |
% |
|
November 6, 2017 |
|
|
8,000 |
|
|
3.19 |
% |
|
November 30, 2017 |
|
|
5,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
322,882 |
|
|
|
|
|
|
|
|
|
The advances are collateralized by first mortgage loans with an estimated eligible
collateral value of $410.3 million and $399.0 million at December 31, 2009 and 2008,
respectively. The Bank is required to acquire and hold shares of capital stock in the
FHLBB in an amount at least equal to the sum of 0.35% of the aggregate principal amount
of its unpaid residential mortgage loans and similar obligations at the beginning of each
year, and up to 4.5% of its advances (borrowings) from the FHLBB. The carrying value of
FHLBB stock approximates fair value based on the most recent redemption provisions of the
stock.
Note 13. PENSION PLANS AND OTHER POST-RETIREMENT BENEFITS:
The Company sponsors a noncontributory defined benefit pension plan (the Pension Plan)
covering all full-time employees hired before January 1, 2005. Participants become 100%
vested after five years of employment. The Companys funding policy is to contribute
annually the maximum amount that can be deducted for Federal income tax purposes, while
meeting the minimum funding standards established by the ERISA.
The measurement date of the pension plan assets and benefit obligations is the Companys
year-end.
The Supplemental Executive Retirement Plan (the SERP) was established to provide two
executive officers with a retirement benefit equal to 70% of their respective average
annual earnings over the 12-month period during the last 120 months of employment
producing the highest average or, if higher, the executives current annual earnings,
which include base salary plus annual incentive compensation. The SERP benefit is offset
by the executives benefits under the Pension Plan, the Supplemental Savings and
Retirement Plan, Supplemental Executive Retirement Agreement and any split dollar
insurance policy benefits. The Company also has supplemental retirement plans (the
Supplemental Plans) that provide benefits for certain key executive officers. The
Supplemental Plans provide restorative payments to certain executives who are prevented
from receiving the full benefits contemplated by the Pension Plan, 401(k) Plan and
Employee Stock Ownership Plan. Benefits under the Supplemental Plans are based on a
predetermined formula. The benefits under the Supplemental Plans are reduced by other
employee benefits. The liability arising from the Supplemental Plans is being accrued
over the participants remaining periods of service so that at the expected retirement
dates, the present value of the annual payments will have been expensed.
The Company also provides an unfunded post-retirement medical, health and life insurance
benefit plan for retirees and employees hired prior to March 1, 1993.
The amounts related to the Pension Plan, Supplemental Plans and the SERPs are reflected
in the tables that follow as Pension Plans.
96
The following table sets forth the plans change in benefit obligation, plan assets and
the funded status of the pension plans and other postretirement benefits plans, using a
December 31 measurement date in 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Post-Retirement |
|
|
|
Pension Plans |
|
|
Benefits |
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Change in Benefit Obligation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year |
|
$ |
20,529 |
|
|
$ |
19,045 |
|
|
$ |
1,753 |
|
|
$ |
1,611 |
|
Service cost |
|
|
904 |
|
|
|
1,071 |
|
|
|
11 |
|
|
|
9 |
|
Interest cost |
|
|
1,237 |
|
|
|
1,337 |
|
|
|
107 |
|
|
|
99 |
|
Plan participants contributions |
|
|
|
|
|
|
|
|
|
|
26 |
|
|
|
22 |
|
Amendments |
|
|
118 |
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
Actuarial (gain) loss |
|
|
(585 |
) |
|
|
630 |
|
|
|
406 |
|
|
|
119 |
|
Benefits paid |
|
|
(361 |
) |
|
|
(1,554 |
) |
|
|
(113 |
) |
|
|
(107 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year |
|
$ |
21,842 |
|
|
$ |
20,529 |
|
|
$ |
2,189 |
|
|
$ |
1,753 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Plan Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year |
|
$ |
13,032 |
|
|
$ |
14,388 |
|
|
$ |
|
|
|
$ |
|
|
Actual return on plan assets |
|
|
3,687 |
|
|
|
(4,968 |
) |
|
|
|
|
|
|
|
|
Employer contributions |
|
|
1,027 |
|
|
|
5,166 |
|
|
|
88 |
|
|
|
85 |
|
Plan participants contributions |
|
|
|
|
|
|
|
|
|
|
25 |
|
|
|
22 |
|
Benefits paid |
|
|
(361 |
) |
|
|
(1,554 |
) |
|
|
(113 |
) |
|
|
(107 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year |
|
$ |
17,385 |
|
|
$ |
13,032 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded Status: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of year |
|
$ |
(4,457 |
) |
|
$ |
(7,497 |
) |
|
$ |
(2,189 |
) |
|
$ |
(1,753 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts Recognized in the Consolidated
Statements of Condition: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses and other liabilities |
|
$ |
(4,457 |
) |
|
$ |
(7,497 |
) |
|
$ |
(2,189 |
) |
|
$ |
(1,753 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Post-Retirement |
|
|
|
Pension Plans |
|
|
Benefits |
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
Amounts Recognized in Accumulated Other
Comprehensive Income (Loss) Consist of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service (credit) cost |
|
$ |
(116 |
) |
|
$ |
87 |
|
|
$ |
28 |
|
|
$ |
48 |
|
Net loss |
|
|
7,022 |
|
|
|
11,199 |
|
|
|
716 |
|
|
|
336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive loss |
|
|
6,906 |
|
|
|
11,286 |
|
|
|
744 |
|
|
|
384 |
|
Deferred tax asset |
|
|
(2,348 |
) |
|
|
(3,837 |
) |
|
|
(253 |
) |
|
|
(131 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net impact
on accumulated other comprehensive loss |
|
$ |
4,558 |
|
|
$ |
7,449 |
|
|
$ |
491 |
|
|
$ |
253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the components of net periodic benefit costs and other
amounts recognized in accumulated other comprehensive (loss) income for the retirement
plans for the years ended December 31, 2009, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans |
|
|
Other Post-Retirement Benefits |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
Components of Net
Periodic Benefit Cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
904 |
|
|
$ |
870 |
|
|
$ |
951 |
|
|
$ |
11 |
|
|
$ |
9 |
|
|
$ |
18 |
|
Interest cost |
|
|
1,237 |
|
|
|
1,123 |
|
|
|
993 |
|
|
|
107 |
|
|
|
99 |
|
|
|
122 |
|
Expected return on plan assets |
|
|
(1,050 |
) |
|
|
(1,335 |
) |
|
|
(1,052 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net actuarial
losses |
|
|
956 |
|
|
|
408 |
|
|
|
485 |
|
|
|
24 |
|
|
|
19 |
|
|
|
19 |
|
Amortization of prior service
cost |
|
|
321 |
|
|
|
312 |
|
|
|
312 |
|
|
|
20 |
|
|
|
19 |
|
|
|
87 |
|
Settlement charge |
|
|
|
|
|
|
117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
2,368 |
|
|
$ |
1,495 |
|
|
$ |
1,689 |
|
|
$ |
162 |
|
|
$ |
146 |
|
|
$ |
246 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Changes in Plan
Assets and Benefit
Obligations Recognized
in Other Comprehensive
Income (Loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (gain) loss |
|
$ |
(3,221 |
) |
|
$ |
7,150 |
|
|
$ |
(33 |
) |
|
$ |
404 |
|
|
$ |
120 |
|
|
$ |
(543 |
) |
Change in prior service
cost (credit) |
|
|
118 |
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
Amortization of net loss |
|
|
(956 |
) |
|
|
(408 |
) |
|
|
(485 |
) |
|
|
(24 |
) |
|
|
(19 |
) |
|
|
(19 |
) |
Amortization of prior
service cost |
|
|
(321 |
) |
|
|
(312 |
) |
|
|
(312 |
) |
|
|
(19 |
) |
|
|
(19 |
) |
|
|
(87 |
) |
Adjustment for change
in measurement date |
|
|
|
|
|
|
(39 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in
other comprehensive
(loss) income |
|
|
(4,380 |
) |
|
|
6,391 |
|
|
|
(830 |
) |
|
|
360 |
|
|
|
82 |
|
|
|
(649 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in net
periodic benefit cost
and other comprehensive
(loss) income |
|
$ |
(2,012 |
) |
|
$ |
7,886 |
|
|
$ |
859 |
|
|
$ |
522 |
|
|
$ |
228 |
|
|
$ |
(403 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98
The amounts in accumulated other comprehensive loss that are expected to be recognized as
components of net periodic benefit cost during 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
Post-Retirement |
|
|
|
Pension Plans |
|
|
Benefits |
|
|
|
(In thousands) |
|
Net actuarial losses |
|
$ |
558 |
|
|
$ |
60 |
|
Prior service (credit) costs |
|
|
(37 |
) |
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized |
|
$ |
521 |
|
|
$ |
78 |
|
|
|
|
|
|
|
|
Assumptions
Weighted-average assumptions used to determine pension benefit obligations at December
31,
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
2008 |
Discount rate |
|
|
6.00% / 5.55 |
%(1) |
|
|
6.00% / 6.40 |
%(2) |
Rate of compensation increase |
|
|
4.0 |
% |
|
|
4.50 |
% |
|
|
|
(1) |
|
The discount rate was 6.00% for the Pension Plan and was 5.55% for the Supplemental and SERP plans with measurement dates of December 31, 2009. |
|
(2) |
|
The discount rate was 6.00% for the Pension Plan and was 6.40% for the Supplemental and SERP plans with measurement dates of December 31, 2008. |
In general, the Bank has selected their assumptions with respect to the expected
long-term rate of return based on the prevailing yields on high quality fixed income
investments increased by a premium for equity return expectations.
Certain disaggregated information related to the Companys defined benefit pension plans
is as follows as of their respective measurement dates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Plans |
|
|
Pension Plan |
|
and SERPs |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
|
(In thousands) |
Benefit Obligation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation |
|
$ |
17,855 |
|
|
$ |
16,542 |
|
|
$ |
3,987 |
|
|
$ |
3,987 |
|
Accumulated benefit obligation |
|
|
14,835 |
|
|
|
13,283 |
|
|
|
3,750 |
|
|
|
3,621 |
|
Fair value of plan assets |
|
|
17,385 |
|
|
|
13,032 |
|
|
|
|
|
|
|
|
|
Weighted-average assumptions used to determine net benefit pension expense for the years
ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
2008 |
|
2007 |
Discount rate(1) |
|
|
6.00% / 6.40 |
% |
|
|
6.30% / 6.20 |
% |
|
|
6.00 |
% |
Expected long-term rate of return
on plan assets |
|
|
8.25 |
% |
|
|
8.25 |
% |
|
|
8.25 |
% |
Rate of compensation increase |
|
|
4.50 |
% |
|
|
4.50 |
% |
|
|
4.25 |
% |
|
|
|
(1) |
|
The discount rate was 6.00% for the Pension Plan and 6.40% for the supplemental and SERP plans with measurement dates of December 31, 2009. |
The accumulated post-retirement benefit obligation for the other post-retirement benefits
was $2.2 million and $1.8 million as of December 31, 2009 and 2008, respectively.
The Company does not intend to apply for the government subsidy under Medicare Part-D for
post-retirement prescription drug benefits. Therefore, the impact of the subsidy is not
reflected in the development of the liabilities for the plan. As of December 31, 2009,
prescription drug benefits are included in the post-retirement benefits offered to
employees hired prior to March 1, 1993.
99
The expected long-term rate of return is based on the actual historical rates of return
of published indices that are used to measure the plans target assets allocation. The
historical rates are then discounted to consider fluctuations in the historical rates as
well as potential changes in the investment environment.
Assumed Healthcare Trend Rates
The Companys accumulated post-retirement benefit obligations, exclusive of pensions,
take into account certain cost-sharing provisions. The annual rate of increase in the
cost of covered benefits (i.e., healthcare cost trend rate) is assumed to be 10% at
December 31, 2009, decreasing gradually to a rate of 5% at December 31, 2013. Assumed
healthcare cost trend rates have a significant effect on the amounts reported for the
healthcare plans. A one percentage point change in the assumed healthcare cost trend rate
would have the following effects (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
1% |
|
1% |
|
|
Increase |
|
Decrease |
|
|
(In thousands) |
Effect on post-retirement benefit obligation |
|
$ |
247 |
|
|
$ |
(209 |
) |
Effect on total service and interest |
|
|
14 |
|
|
|
(11 |
) |
Plan Assets
The Companys fair value of major categories of Pension Plan assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Fair Value |
|
Asset Category |
|
(In thousands) |
|
Domestic equity funds |
|
$ |
8,997 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
8,997 |
|
International equity funds |
|
|
1,746 |
|
|
|
|
|
|
|
|
|
|
|
1,746 |
|
Fixed income funds |
|
|
187 |
|
|
|
|
|
|
|
|
|
|
|
187 |
|
Domestic bond funds |
|
|
4,732 |
|
|
|
|
|
|
|
|
|
|
|
4,732 |
|
International bond funds |
|
|
873 |
|
|
|
|
|
|
|
|
|
|
|
873 |
|
Real estate REIT index funds |
|
|
850 |
|
|
|
|
|
|
|
|
|
|
|
850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
17,385 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
17,385 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The plan assets measured at fair value in Level 1 are based on quoted market prices in an
active exchange market.
The Companys investment goal is to obtain a competitive risk adjusted return on the
Pension Plan assets commensurate with prudent investment practices and the plans
responsibility to provide retirement benefits for its participants, retirees and their
beneficiaries. The 2009 targeted allocation for equity securities, debt securities and
real estate is 62%, 33% and 5%, respectively. The pension Plans investment policy does
not explicitly designate allowable or prohibited investments; instead, it provides
guidance regarding investment diversification and other prudent investment practices to
limit the risk of loss. The Plans asset allocation targets are strategic and long-term
in nature and are designed to take advantage of the risk reducing impacts of asset class
diversification.
Plan assets are periodically rebalanced to their asset class targets to reduce risk and
to retain the portfolios strategic risk/return profile. Investments within each asset
category are further diversified with regard to investment style and concentration of
holdings.
Contributions
The Company contributed $1.0 million to the Pension Plan for the year ended December 31,
2009. In 2008, the Company contributed $1.5 million to the Pension Plan after the
measurement date for the year ending December 31, 2008. The Company plans to contribute
$900,000 to the Pension Plan in 2010.
100
Estimated Future Benefit Payments
The following benefit payments, which reflect expected future service, as appropriate,
are expected to be paid:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Post- |
|
|
|
Pension |
|
|
Retirement |
|
Years Ending December 31, |
|
Plans |
|
|
Benefits |
|
|
|
(In thousands) |
|
2010 |
|
$ |
628 |
|
|
$ |
116 |
|
2011 |
|
|
841 |
|
|
|
124 |
|
2012 |
|
|
987 |
|
|
|
131 |
|
2013 |
|
|
1,030 |
|
|
|
140 |
|
2014 |
|
|
1,056 |
|
|
|
148 |
|
Years 2015-2019 |
|
|
6,674 |
|
|
|
812 |
|
401(k) Plan: The Company has a tax-qualified 401(k) plan for the benefit of its eligible
employees. Beginning January 1, 2005, the 401(k) Plan was amended to pay all employees,
even those who do not contribute to the 401(k) Plan, an automatic 3% of pay safe harbor
contribution that is fully vested to participants of the 401(k) Plan. For employees hired
on or after January 1, 2005, a discretionary matching contribution equal to a uniform
percentage of the amount of the salary reduction the employee elected to defer, which
percentage will be determined each year by the Company. The Company contributed $396,000,
$393,000 and $271,000 to the plan for the years ended December 31, 2009, 2008 and 2007,
respectively.
Note 14. SHARE-BASED COMPENSATION
The Board of Directors and stockholders of the Company approved the Rockville
Financial, Inc. 2006 Stock Incentive Award Plan (the Plan) in 2006. The Plan allows the
Company to use stock options, stock awards, stock appreciation rights and performance
awards to attract, retain and reward performance of qualified employees and others who
contribute to the success of the Company. The Plan allowed for the issuance of a maximum
of 349,830 restricted stock shares and 874,575 stock options in connection with Awards
under the Plan. As of December 31, 2009, there were 31,907
restricted stock shares and 416,700 stock options that remain available for future grants
under the Plan.
The fair value of stock option and restricted stock awards, measured at grant date, are
amortized to compensation expense on a straight-line basis over the vesting period. The
Company accelerates the recognition of compensation costs for stock-based awards granted
to retirement-eligible employees and Directors and employees and Directors who become
retirement-eligible prior to full vesting of the award because the Companys incentive
compensation plans allow for vesting at the time an employee or Director retires.
Stock-based compensation granted to non-retirement-eligible individuals is expensed over
the normal vesting period.
Total employee and Director share-based compensation expense recognized for stock options
and restricted stock was $827,000, with a related tax benefit recorded of $285,000, for
the year ended December 31, 2009 of which Director share-based compensation expense
recognized (in the consolidated statement of operations as other non-interest expense)
was $362,000 and officer share-based compensation expense recognized (in the consolidated
statement of operations as salaries and benefits expense) was $476,000. The total charge
of $838,000 includes $43,000 related to 4,537 vested restricted shares used for income
tax withholding payments on behalf of certain executives.
Total employee and Director share-based compensation expense recognized for stock options
and restricted stock was $1,743,000, with a related tax benefit recorded of $593,000, for
the year ended December 31, 2008 of which Director share-based compensation expense
recognized (in the consolidated statement of operations as other non-interest expense)
was $387,000 and officer share-based compensation expense recognized (in the consolidated
statement of operations as salaries and benefits expense) was $1,356,000. The total
charge of $1,743,000 includes $214,000 related to 17,762 vested restricted shares used
for income tax withholding payments on behalf of certain executives.
Total employee and Director share-based compensation expense recognized for stock options
and restricted stock was $952,000, with a related tax benefit of $324,000, for the year
ended December
101
31, 2007 of which Director share-based compensation expense recognized (in the
consolidated statement of income as other non-interest expense) was $341,000 and officer
share-based compensation expense recognized (in the consolidated statement of income as
salaries and benefits expense) was $611,000. The total charge of $952,000 includes
$21,000 related to 1,556 vested restricted shares used for income tax withholding
payments on behalf of certain executives.
Stock Options:
The following table presents the activity related to stock options under the Plan for the
year ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
Aggregate |
|
|
|
|
|
|
|
Weighted- |
|
|
Remaining |
|
|
Intrinsic |
|
|
|
Stock |
|
|
Average |
|
|
Contractual Term |
|
|
Value |
|
|
|
Options |
|
|
Exercise Price |
|
|
(in years) |
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
outstanding at
December 31, 2008 |
|
|
342,125 |
|
|
$ |
14.74 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
126,250 |
|
|
|
9.24 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
(22,500 |
) |
|
|
14.70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
outstanding at
December 31, 2009 |
|
|
445,875 |
|
|
$ |
13.18 |
|
|
|
8.0 |
|
|
$ |
159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
vested and
exercisable at
December 31, 2009 |
|
|
330,240 |
|
|
$ |
14.04 |
|
|
|
7.6 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the unvested Stock Option activity for the year ended
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
|
|
|
|
|
Grant-Date Fair |
|
|
|
Number of Shares |
|
|
Value |
|
|
|
|
|
|
|
|
Unvested as of December 31, 2008 |
|
|
86,300 |
|
|
$ |
3.07 |
|
Granted |
|
|
126,250 |
|
|
|
3.05 |
|
Vested |
|
|
(86,415 |
) |
|
|
3.05 |
|
Forfeited, expired or canceled |
|
|
(10,500 |
) |
|
|
3.30 |
|
|
|
|
|
|
|
|
Unvested as of December 31, 2009 |
|
|
115,635 |
|
|
$ |
3.04 |
|
|
|
|
|
|
|
|
The aggregate fair value of options vested was $264,000 and $534,000 for 2009 and 2008,
respectively.
As of December 31, 2009, the unrecognized cost related to the stock options awarded of $257,000
will be recognized over a weighted-average period of 2.6 years.
For share-based compensation recognized for the years ended December 31, 2009, 2008 and 2007, the
Company used the Black-Scholes option pricing model for estimating the fair value of stock options
granted. The weighted-average estimated fair values of stock option grants and the assumptions that
were used in calculating such fair values were based on estimates at the date of grant as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Weighted per share average fair
value of options granted |
|
$ |
3.05 |
|
|
$ |
2.72 |
|
|
$ |
4.08 |
|
Assumptions: |
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest rate |
|
|
2.23 |
% |
|
|
3.24 |
% |
|
|
4.60 |
% |
Expected volatility |
|
|
39.85 |
% |
|
|
22.11 |
% |
|
|
19.06 |
% |
Expected dividend yield |
|
|
2.16 |
% |
|
|
1.67 |
% |
|
|
.84 |
% |
Expected life of options granted |
|
6.0 years |
|
6.0 years |
|
6.5 years |
102
The expected volatility was determined using both the Companys historical trading
volatility as well as the historical volatility of an index published by SNL Financial
for mutual holding companys common stock over the expected average life of the options.
The index was used as the Companys stock has only been publicly traded since May 23,
2005.
The Company estimates option forfeitures using historical data on employee terminations.
The expected life of stock options granted represents the period of time that stock
options granted are expected to be outstanding.
The risk-free interest rate for periods within the contractual life of the stock option
is based on the average five- and seven-year U.S. Treasury Note yield curve in effect at
the date of grant.
The expected dividend yield reflects an estimate of the dividends the Company expects to
declare over the expected life of the options granted.
Stock options provide grantees the option to purchase shares of common stock at a
specified exercise price and expire ten years from the date of grant.
The Company plans to use Treasury stock to satisfy future stock option exercises.
Additional information regarding stock options outstanding as of December 31, 2009, is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
|
Exercisable Options |
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
Average |
|
|
|
|
|
|
Weighted- |
|
Average |
|
|
|
|
|
Remaining |
|
|
|
|
|
|
Average |
|
Exercise |
|
|
|
|
|
Contractual |
|
|
|
|
|
|
Exercise |
|
Prices |
|
Shares |
|
|
Life (Years) |
|
|
Shares |
|
|
Prices |
|
$9.24 |
|
|
126,250 |
|
|
|
9.3 |
|
|
|
63,890 |
|
|
$ |
9.24 |
|
$11.98 |
|
|
121,125 |
|
|
|
8.2 |
|
|
|
79,650 |
|
|
$ |
11.98 |
|
$14.35 |
|
|
78,000 |
|
|
|
7.7 |
|
|
|
66,200 |
|
|
$ |
14.35 |
|
$17.77 |
|
|
120,500 |
|
|
|
7.0 |
|
|
|
120,500 |
|
|
$ |
17.77 |
|
Restricted Stock:
Restricted stock provides grantees with rights to shares of common stock upon completion
of a service period. During the restriction period, all shares are considered outstanding
and dividends are paid on the restricted stock
The following table presents the activity for restricted stock for the year ended
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
|
|
|
|
|
Grant-Date |
|
|
|
Number of Shares |
|
|
Fair Value |
|
|
Unvested as of December 31, 2008 |
|
|
67,580 |
|
|
$ |
15.23 |
|
Granted |
|
|
16,427 |
|
|
|
9.24 |
|
Vested |
|
|
(33,112 |
) |
|
|
14.93 |
|
Forfeited |
|
|
(9,200 |
) |
|
|
13.57 |
|
|
Unvested as of December 31, 2009 |
|
|
41,695 |
|
|
$ |
13.47 |
|
|
The fair value of restricted shares that vested during the years ended December 31,
2009, 2008 and 2007 was $494,000, $1.1 million and $264,000, respectively. The
weighted-average grant date fair value of restricted stock granted during the year ended
December 31, 2009 was $9.24 and for the year ended December 31, 2008 was $11.98. There
were no restricted stock shares granted in 2007.
As of December 31, 2009, there was $431,000 of total unrecognized compensation cost
related to unvested restricted stock which is expected to be recognized over a
weighted-average period of 1.7 years.
Of the remaining unvested restricted stock, 23,445 shares will vest in 2010, 7,950 shares
in 2011, 7,950 shares will vest in 2012 and 2,350 shares will vest in 2013. All unvested
restricted stock shares are expected to vest.
103
Employee Stock Ownership Plan: As part of the reorganization and stock offering
completed in 2005, the Company established an ESOP for eligible employees of the Bank,
and authorized the Company to lend the funds to the ESOP to purchase 699,659 or 3.6% of
the shares issued in the initial public offering. Upon completion of the reorganization,
the ESOP borrowed $4.4 million from the Company to purchase 437,287 shares of common
stock. Additional shares of 59,300 and 203,072 were subsequently purchased by the ESOP in
the open market at a total cost of $817,000 and $2.7 million in 2006 and 2005,
respectively, with additional funds borrowed from the Company. The Bank intends to make
annual contributions to the ESOP that will be adequate to fund the payment of regular
debt service requirements attributable to the indebtedness of the ESOP. The interest rate
for the ESOP loan is the prime rate plus one percent, or 4.25% as of December 31, 2009.
As the loan is repaid to the Company, shares will be released from collateral and will be
allocated to the accounts of the participants. As of December 31, 2009, the outstanding
principal and interest due was $4.5 million and principal payments of $3.4 million have
been made on the loan since inception. Dividends paid in 2009 totaling $84,000 on
unallocated ESOP shares were offset to the interest payable on the note owed by the
Company.
As of December 31, 2009, there were 208 participants receiving an ESOP allocation with an
aggregate eligible compensation of $10.9 million. The shares were allocated among the
participants in proportion to each individuals compensation as a percentage of the total
aggregate compensation. Compensation was capped at $245,000 for 2009, as prescribed by
law. The 2010 compensation cap is $245,000.
ESOP expense was $928,000, $913,000 and $1.0 million for the years ended December 31,
2009, 2008 and 2007, respectively. At December 31, 2009, there were 265,455 allocated and
419,795 unallocated ESOP shares and the unallocated shares had an aggregate fair value of
$7.2 million.
104
Note 15. INCOME TAXES
The components of the income tax expense (benefit) for the years ended December 31,
2009, 2008 and 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
|
|
|
|
Current |
|
$ |
6,177 |
|
|
$ |
4,572 |
|
|
$ |
3,576 |
|
Deferred |
|
|
(1,242 |
) |
|
|
(5,528 |
) |
|
|
540 |
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense (benefit) |
|
$ |
4,935 |
|
|
$ |
(956 |
) |
|
$ |
4,116 |
|
|
|
|
|
|
|
|
|
|
|
The tax effects of temporary differences that give rise to deferred tax assets and
deferred tax liabilities at December 31, 2009 and 2008 are presented below:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
$ |
4,389 |
|
|
$ |
4,268 |
|
Investment security losses |
|
|
5,127 |
|
|
|
5,288 |
|
Pension and post-retirement liabilities |
|
|
2,433 |
|
|
|
3,194 |
|
Stock incentive award plan |
|
|
471 |
|
|
|
352 |
|
Other |
|
|
606 |
|
|
|
465 |
|
|
|
|
|
|
|
|
Gross deferred tax assets |
|
|
13,026 |
|
|
|
13,567 |
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Unrealized gains on securities |
|
|
(2,129 |
) |
|
|
(1,859 |
) |
Other |
|
|
(289 |
) |
|
|
(232 |
) |
|
|
|
|
|
|
|
Gross deferred tax liabilities |
|
|
(2,418 |
) |
|
|
(2,091 |
) |
|
|
|
|
|
|
|
Net deferred tax asset |
|
$ |
10,608 |
|
|
$ |
11,476 |
|
|
|
|
|
|
|
|
As of December 31, 2009, management believes it is more likely than not that the deferred
tax assets will be realized through future earnings and future reversals of existing
taxable temporary differences. As of December 31, 2009 and 2008, our net deferred tax
asset was $10.6 million and $11.5 million, respectively, and there was no valuation
allowance.
Retained earnings at December 31, 2009 includes a contingency reserve for loan losses of
approximately $1.2 million, which represents the tax reserve balance existing at December
31, 1987, and is maintained in accordance with provisions of the Internal Revenue Code
applicable to mutual savings banks. Amounts transferred to the reserve have been claimed
as deductions from taxable income, and, if the reserve is used for purposes other than to
absorb losses on loans, a Federal income tax liability could be incurred. It is not
anticipated that the Company will incur a Federal income tax liability relating to this
reserve balance, and accordingly, deferred income taxes of approximately $408,000 at
December 31, 2009 have not been recognized.
As of December 31, 2008 and December 31, 2009, there were no material uncertain tax
positions related to federal and state income tax matters. The Company is currently open
to audit under the statute of limitations by the Internal Revenue Service and state
taxing authorities for the years ended December 31, 2006 through 2009.
For the years ended December 31, 2009, 2008 and 2007, a reconciliation of the anticipated
income tax provision (computed by applying the Federal statutory income tax rate of 34%
to income before income tax expense), to the provision for income taxes as reported in
the statements of operations is as follows:
105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Provision for income tax at statutory rate |
|
$ |
4,986 |
|
|
$ |
(865 |
) |
|
$ |
4,230 |
|
Increase (decrease) resulting from: |
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash surrender value of Bank-
Owned Life Insurance |
|
|
(126 |
) |
|
|
(130 |
) |
|
|
(125 |
) |
Dividend received deduction |
|
|
(76 |
) |
|
|
(234 |
) |
|
|
(67 |
) |
Tax exempt interest and disallowed interest
expense |
|
|
(11 |
) |
|
|
(16 |
) |
|
|
(17 |
) |
Excess book basis of Employee Stock Ownership
Plan |
|
|
40 |
|
|
|
42 |
|
|
|
84 |
|
Compensation deduction limit |
|
|
|
|
|
|
243 |
|
|
|
|
|
Other, net |
|
|
122 |
|
|
|
4 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes |
|
$ |
4,935 |
|
|
$ |
(956 |
) |
|
$ |
4,116 |
|
|
|
|
|
|
|
|
|
|
|
Note 16. COMMITMENTS AND CONTINGENCIES
Leases: The Company leases certain of its branch offices under operating lease
agreements which contain renewal options for periods up to twenty years. In addition to
rental payments, the branch leases require payments for executory costs. The Company also
leases certain equipment under non-cancelable operating leases.
Future minimum rental commitments under the terms of these leases, by year and in the
aggregate, are as follows as of December 31, 2009:
|
|
|
|
|
|
|
(In thousands) |
|
2010 |
|
$ |
787 |
|
2011 |
|
|
772 |
|
2012 |
|
|
739 |
|
2013 |
|
|
721 |
|
2014 |
|
|
662 |
|
Thereafter |
|
|
10,001 |
|
|
|
|
|
|
|
$ |
13,682 |
|
|
|
|
|
Total rental expense charged to operations for all cancelable and non-cancelable
operating leases approximated $999,000, $983,000 and $780,000 for the years ended
December 31, 2009, 2008 and 2007, respectively.
106
The Company, as a landlord, leases space to third party tenants under non-cancelable
operating leases. In addition to base rent, the leases require payments for executory
costs. Future minimum rental receivable under the non-cancelable leases are as follows as
of December 31, 2009:
|
|
|
|
|
|
|
(In thousands) |
|
2010 |
|
$ |
327 |
|
2011 |
|
|
327 |
|
2012 |
|
|
318 |
|
2013 |
|
|
318 |
|
2014 |
|
|
318 |
|
Thereafter |
|
|
528 |
|
|
|
|
|
|
|
$ |
2,136 |
|
|
|
|
|
Rental income is recorded as a reduction to occupancy expense and amounted to $327,000,
$320,000 and $346,000 for the years ended December 31, 2009, 2008 and 2007, respectively.
Employment and Change in Control Agreements: In 2009, the Bank and the Company renewed
the employment agreements and change in control agreements for the executive officers and
entered into employment agreements and change in control agreements with three additional
officers which are effective January 1, 2010. Each employment and change in control
agreement has an initial term of one year which is automatically extended on each January
1st for one additional year unless written notice is given by either party; provided,
however, that no such notice by the Bank or the Company will be effective if a change of
control or potential change in control has occurred prior to the date of such notice.
Under certain specified circumstances, the employment agreements require certain payments
to be made for certain reasons other than cause, including a change in control as
defined in the agreement. However, such employment may be terminated for cause, as
defined, without incurring any continuing obligations. If the Bank chooses to terminate
these employment agreements for reasons other than cause, or if the officer resigns from
the Bank after specified circumstances that would constitute good reason, as defined in
the employment agreement, the officer would be entitled to receive a severance benefit in
the amount of three times the sum of his or her base salary and his or her potential
annual incentive compensation for the year of termination or, if higher, his or her
actual annual incentive compensation for the year prior to the year of termination,
payable in monthly installments over the employment agreement renewal period following
termination. In addition, the officer will be entitled to a pro-rata portion of the
annual incentive compensation potentially payable to them for the year of termination;
accelerated vesting of any outstanding stock options, restricted stock or other stock
awards; immediate exercisability of any such options; and deemed satisfaction of any
performance-based objectives under any stock plan or other long-term incentive award. In
consideration for the compensation and benefits provided under their employment
agreement, the officers are prohibited from competing with the Bank and the Company
during the term of the employment agreements and for a period of two years following
termination of employment for any reason.
Change in Control Severance Plan: The Bank and the Company adopted a Change in Control
Severance Plan to provide benefits to eligible employees upon a change in control of the
Bank or the Company. Eligible employees are those with a minimum of one year of service
with the Bank as of the date of the change in control. Generally, all eligible employees,
other than officers who will enter into separate employment or change in control or
change in control and restrictive covenant agreements with the Bank and the Company, will
be eligible to participate in the plan. Under the plan, if a change in control of the
Bank or the Company occurs, eligible
employees who are terminated, or who terminate employment upon the occurrence of events
specified in the plan, within 24 months of the effective date of the change in control,
will be entitled to 1/26th of the sum of the employees annual base salary and his or her
potential annual incentive compensation for the year of termination or, if higher, his or
her actual annual incentive compensation for the year prior to the year of termination,
multiplied by the employees total years of service with the Bank. Subsidized COBRA
coverage will also be made available to such employees for a period of weeks equal to the
employees years of service with the Bank multiplied by two.
107
Legal Matters: The Company is involved in various legal proceedings which have arisen in
the normal course of business. Management believes that resolution of these matters will
not have a material effect on the Companys financial condition, results of operations or
cash flows.
Financial Instruments With Off-Balance Sheet Risk: In the normal course of business, the
Company is a party to financial instruments with off-balance sheet risk to meet the
financing needs of its customers. These financial instruments include commitments to
extend credit and undisbursed portions of construction loans and involve, to varying
degrees, elements of credit and interest rate risk in excess of the amounts recognized in
the statements of financial condition. The contractual amounts of those instruments
reflect the extent of involvement the Company has in particular classes of financial
instruments.
The contractual amounts of commitments to extend credit represent the amounts of
potential accounting loss should the contract be fully drawn upon, the customer default
and the value of any existing collateral obligations is deemed worthless. The Company
uses the same credit policies in making commitments as it does for on-balance sheet
instruments. Off-balance sheet financial instruments whose contract amounts represent
credit risk are as follows at December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Commitments to extend credit: |
|
|
|
|
|
|
|
|
Future loan commitments |
|
$ |
36,650 |
|
|
$ |
48,743 |
|
Undisbursed construction loans |
|
|
86,492 |
|
|
|
93,905 |
|
Undisbursed home equity lines of credit |
|
|
125,511 |
|
|
|
113,725 |
|
Undisbursed commercial lines of credit |
|
|
57,713 |
|
|
|
58,605 |
|
Standby letters of credit |
|
|
10,555 |
|
|
|
12,231 |
|
Unused checking overdraft lines of credit |
|
|
94 |
|
|
|
112 |
|
|
|
|
|
|
|
|
|
|
$ |
317,015 |
|
|
$ |
327,321 |
|
|
|
|
|
|
|
|
Commitments to extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee. Standby
letters of credit are conditional commitments issued by the Company to guarantee the
performance of a customer to a third party. Since these commitments could expire without
being drawn upon, the total commitment amounts do not necessarily represent future cash
requirements. The Company evaluates each customers creditworthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary by the Company upon
extension of credit, is based on managements credit evaluation of the counterparty.
Collateral held varies but may include residential and commercial property, accounts
receivable, inventory, property, plant and equipment, deposits, and securities.
Note 17. REGULATORY MATTERS
The Company and the Bank are subject to various regulatory capital requirements
administered by the Federal banking agencies. Failure to meet minimum capital
requirements can initiate
certain mandatory, and possibly additional discretionary, actions by regulators that, if
undertaken, could have a direct material effect on the Companys financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Company and the Bank must meet specific capital guidelines that involve
quantitative measures of the Companys and the Banks assets, liabilities, and certain
off-balance sheet items, as calculated under regulatory accounting practices. The
Companys and the Banks capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation to ensure capital adequacy require the
Company and Bank to maintain minimum amounts and ratios (set forth in the table below) of
total and Tier I capital (as defined in the regulations) to risk-weighted assets (as
defined), and of Tier I capital (as defined) to average assets (as defined). Management
believes, as of December 31, 2009, 2008 and 2007, that the Company and the Bank meet all
capital adequacy requirements to which they are subject.
108
As of December 31, 2009, the most recent notification from the FDIC categorized the Bank
as well capitalized under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the table below. There are no
conditions or events since then that management believes have changed the Banks
category. Prompt corrective provisions are not applicable to bank holding companies
The following is a summary of the Banks regulatory capital amounts and ratios as of
December 31, 2009 and 2008 compared to the FDICs requirements for classification as a
well capitalized institution and for minimum capital adequacy. Also included is a summary
of Rockville Financial, Inc.s regulatory capital and ratios as of December 31, 2009 and
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To Be Well Capitalized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under |
|
|
|
|
|
|
|
|
|
|
|
Required Minimum |
|
|
Prompt Corrective |
|
|
|
Actual |
|
|
Ratios |
|
|
Action Provisions |
|
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
|
(Dollars in thousands) |
|
Rockville Bank: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital to risk weighted assets |
|
$ |
158,870 |
|
|
|
13.1 |
% |
|
$ |
96,976 |
|
|
|
8.0 |
% |
|
$ |
121,220 |
|
|
|
10.0 |
% |
Tier I capital to risk weighted assets |
|
|
145,654 |
|
|
|
12.0 |
|
|
|
48,488 |
|
|
|
4.0 |
|
|
|
72,732 |
|
|
|
6.0 |
|
Tier I capital to total average assets |
|
|
145,654 |
|
|
|
9.3 |
|
|
|
62,478 |
|
|
|
4.0 |
|
|
|
78,097 |
|
|
|
5.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rockville Bank: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital to risk weighted assets |
|
$ |
147,898 |
|
|
|
12.8 |
% |
|
$ |
92,436 |
|
|
|
8.0 |
% |
|
$ |
115,545 |
|
|
|
10.0 |
% |
Tier I capital to risk weighted assets |
|
|
134,621 |
|
|
|
11.7 |
|
|
|
46,024 |
|
|
|
4.0 |
|
|
|
69,036 |
|
|
|
6.0 |
|
Tier I capital to total average assets |
|
|
134,621 |
|
|
|
8.8 |
|
|
|
61,191 |
|
|
|
4.0 |
|
|
|
76,489 |
|
|
|
5.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rockville Financial, Inc.: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital to risk weighted assets |
|
$ |
170,559 |
|
|
|
14.1 |
% |
|
$ |
96,978 |
|
|
|
8.0 |
% |
|
|
N/A |
|
|
|
N/A |
|
Tier I capital to risk weighted assets |
|
|
157,343 |
|
|
|
13.0 |
|
|
|
48,489 |
|
|
|
4.0 |
|
|
|
N/A |
|
|
|
N/A |
|
Tier I capital to total average assets |
|
|
157,343 |
|
|
|
10.1 |
|
|
|
62,028 |
|
|
|
4.0 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rockville Financial, Inc.: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital to risk weighted assets |
|
$ |
162,068 |
|
|
|
14.2 |
% |
|
$ |
91,306 |
|
|
|
8.0 |
% |
|
$ |
114,132 |
|
|
|
10.0 |
% |
Tier I capital to risk weighted assets |
|
|
148,791 |
|
|
|
12.9 |
|
|
|
46,137 |
|
|
|
4.0 |
|
|
|
69,205 |
|
|
|
6.0 |
|
Tier I capital to total average assets |
|
|
148,791 |
|
|
|
10.4 |
|
|
|
57,227 |
|
|
|
4.0 |
|
|
|
71,534 |
|
|
|
5.0 |
|
On October 8, 2008, Rockville Financial, Inc. made a $10.0 million capital
contribution to Rockville Bank. This capital contribution has no affect on the capital
amounts and ratios of Rockville Financial, Inc., but increased Rockville Banks capital
amounts and ratios at the time of the capital contribution.
Connecticut law restricts the amount of dividends that the Bank can pay based on retained
earnings for the current year and the preceding two years. As of December 31, 2009, $16.5 million
was available for the payment of dividends.
109
Note 18. ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
Components of accumulated other comprehensive (loss) income, net of taxes, consist
of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative |
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
effect |
|
|
|
|
|
|
|
|
|
|
Gains on |
|
|
adjustment of a |
|
|
Accumulated |
|
|
|
Minimum |
|
|
Available- |
|
|
change in |
|
|
Other |
|
|
|
Pension |
|
|
ForSale |
|
|
accounting |
|
|
Comprehensive |
|
|
|
Liability |
|
|
Securities |
|
|
principle(1) |
|
|
(Loss) Income |
|
|
|
(In thousands) |
|
December 31, 2006 |
|
$ |
(4,406 |
) |
|
$ |
2,738 |
|
|
$ |
|
|
|
$ |
(1,668 |
) |
Change |
|
|
976 |
|
|
|
451 |
|
|
|
|
|
|
|
1,427 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007 |
|
|
(3,430 |
) |
|
|
3,189 |
|
|
|
|
|
|
|
(241 |
) |
Change |
|
|
(4,272 |
) |
|
|
420 |
|
|
|
|
|
|
|
(3,852 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
(7,702 |
) |
|
|
3,609 |
|
|
|
|
|
|
|
(4,093 |
) |
Change |
|
|
2,653 |
|
|
|
1,441 |
|
|
|
(1,034 |
) |
|
|
3,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
$ |
(5,049 |
) |
|
$ |
5,050 |
|
|
$ |
(1,034 |
) |
|
$ |
(1,033 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The effect of the adoption of FSP FAS 115-2 (ASC 320) |
The following table summarizes other comprehensive income (loss) and the related tax
effects:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
Net income (loss) as reported |
|
$ |
9,732 |
|
|
$ |
(1,587 |
) |
|
$ |
8,328 |
|
Unrealized gain on securities available for sale |
|
|
2,184 |
|
|
|
637 |
|
|
|
684 |
|
Income tax provision expense |
|
|
(743 |
) |
|
|
(217 |
) |
|
|
(233 |
) |
|
|
|
|
|
|
|
|
|
|
Net unrealized gain on securities available for sale |
|
|
1,441 |
|
|
|
420 |
|
|
|
451 |
|
|
|
|
|
|
|
|
|
|
|
Benefit plans amortization |
|
|
4,019 |
|
|
|
(6,474 |
) |
|
|
1,479 |
|
Income tax provision (expense) benefit |
|
|
(1,366 |
) |
|
|
2,202 |
|
|
|
(503 |
) |
|
|
|
|
|
|
|
|
|
|
Net benefit plans amortization |
|
|
2,653 |
|
|
|
(4,272 |
) |
|
|
976 |
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax |
|
|
4,094 |
|
|
|
(3,852 |
) |
|
|
1,427 |
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss) |
|
$ |
13,826 |
|
|
$ |
(5,439 |
) |
|
$ |
9,755 |
|
|
|
|
|
|
|
|
|
|
|
110
Note 19. PARENT COMPANY FINANCIAL INFORMATION
The following represents the Companys condensed statements of condition as of
December 31, 2009 and 2008 and condensed statements of operations and cash flows for the
years ended December 31, 2009 , 2008 and 2007 which should be read in conjunction with
the consolidated financial statements and related notes:
Condensed Statements of Condition
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Assets: |
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
5,129 |
|
|
$ |
7,386 |
|
Accrued interest receivable |
|
|
1 |
|
|
|
5 |
|
Deferred tax asset-net |
|
|
23 |
|
|
|
18 |
|
Investment in Rockville Bank |
|
|
145,739 |
|
|
|
131,604 |
|
Due from Rockville Bank |
|
|
5,002 |
|
|
|
4,298 |
|
Other assets |
|
|
1,724 |
|
|
|
2,634 |
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
157,618 |
|
|
$ |
145,945 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity: |
|
|
|
|
|
|
|
|
Accrued expenses and other liabilities |
|
$ |
190 |
|
|
$ |
168 |
|
Stockholders equity |
|
|
157,428 |
|
|
|
145,777 |
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity |
|
$ |
157,618 |
|
|
$ |
145,945 |
|
|
|
|
|
|
|
|
Condensed Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years ended |
|
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
Interest and dividend income: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest on investments |
|
$ |
46 |
|
|
$ |
224 |
|
|
$ |
384 |
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
46 |
|
|
|
224 |
|
|
|
384 |
|
|
|
|
|
|
|
|
|
|
|
Non-interest expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
512 |
|
|
|
568 |
|
|
|
628 |
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense |
|
|
512 |
|
|
|
568 |
|
|
|
628 |
|
|
|
|
|
|
|
|
|
|
|
Loss before tax benefit and equity in undistributed net income (loss) of Rockville Bank |
|
|
(466 |
) |
|
|
(344 |
) |
|
|
(244 |
) |
Income tax benefit |
|
|
157 |
|
|
|
116 |
|
|
|
82 |
|
|
|
|
|
|
|
|
|
|
|
Loss before equity in undistributed net income (loss) of Rockville Bank |
|
|
(309 |
) |
|
|
(228 |
) |
|
|
(162 |
) |
Equity in undistributed net income (loss) of Rockville Bank |
|
|
10,041 |
|
|
|
(1,359 |
) |
|
|
8,490 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
9,732 |
|
|
$ |
(1,587 |
) |
|
$ |
8,328 |
|
|
|
|
|
|
|
|
|
|
|
111
Condensed Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years ended |
|
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
9,732 |
|
|
$ |
(1,587 |
) |
|
$ |
8,328 |
|
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense |
|
|
1,755 |
|
|
|
2,655 |
|
|
|
1,855 |
|
Undistributed (income) loss of Rockville
Bank |
|
|
(10,041 |
) |
|
|
1,359 |
|
|
|
(8,490 |
) |
Deferred tax benefit |
|
|
(5 |
) |
|
|
289 |
|
|
|
441 |
|
Net change in: |
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest receivable |
|
|
4 |
|
|
|
13 |
|
|
|
7 |
|
Due from Rockville Bank |
|
|
(704 |
) |
|
|
(1,457 |
) |
|
|
(753 |
) |
Other assets |
|
|
910 |
|
|
|
594 |
|
|
|
(2,525 |
) |
Accrued expenses and other liabilities |
|
|
22 |
|
|
|
45 |
|
|
|
124 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
1,673 |
|
|
|
1,911 |
|
|
|
(1,013 |
) |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Capital investment in Rockville Bank |
|
|
|
|
|
|
(10,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
|
|
|
|
(10,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of common stock |
|
|
(198 |
) |
|
|
(4,119 |
) |
|
|
(7,175 |
) |
Cancellation of shares for tax withholding |
|
|
(44 |
) |
|
|
|
|
|
|
|
|
Cash dividends paid on common stock |
|
|
(3,688 |
) |
|
|
(3,691 |
) |
|
|
(3,008 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(3,930 |
) |
|
|
(7,810 |
) |
|
|
(10,183 |
) |
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
(2,257 |
) |
|
|
(15,899 |
) |
|
|
(11,196 |
) |
Cash and cash equivalents beginning of period |
|
|
7,386 |
|
|
|
23,285 |
|
|
|
34,481 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of year |
|
$ |
5,129 |
|
|
$ |
7,386 |
|
|
$ |
23,285 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes |
|
$ |
4,401 |
|
|
$ |
1,751 |
|
|
$ |
2,001 |
|
As of December 31, 2009 and 2008, the Company had not engaged in any business activities
other than owning the common stock of Rockville Bank.
112
Note 20. SELECTED QUARTERLY CONSOLIDATED INFORMATION (UNAUDITED):
The following table presents quarterly financial information of the Company for the
years ended December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended, |
|
|
|
December 31, |
|
|
September 30, |
|
|
June 30, |
|
|
March 31, |
|
|
December 31, |
|
|
September 30, |
|
|
June 30, |
|
|
March 31, |
|
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
2008 |
|
|
2008 |
|
|
2008 |
|
|
2008 |
|
(In thousands, except per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and dividend income |
|
$ |
18,940 |
|
|
$ |
18,684 |
|
|
$ |
19,114 |
|
|
$ |
19,324 |
|
|
$ |
19,983 |
|
|
$ |
19,676 |
|
|
$ |
18,940 |
|
|
$ |
18,946 |
|
Interest expense |
|
|
6,517 |
|
|
|
7,384 |
|
|
|
7,813 |
|
|
|
8,061 |
|
|
|
8,568 |
|
|
|
8,472 |
|
|
|
8,727 |
|
|
|
9,179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
12,423 |
|
|
|
11,300 |
|
|
|
11,301 |
|
|
|
11,263 |
|
|
|
11,415 |
|
|
|
11,204 |
|
|
|
10,213 |
|
|
|
9,767 |
|
Provision for loan losses |
|
|
658 |
|
|
|
700 |
|
|
|
304 |
|
|
|
299 |
|
|
|
1,444 |
|
|
|
700 |
|
|
|
125 |
|
|
|
124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses |
|
|
11,765 |
|
|
|
10,600 |
|
|
|
10,997 |
|
|
|
10,964 |
|
|
|
9,971 |
|
|
|
10,504 |
|
|
|
10,088 |
|
|
|
9,643 |
|
Non-interest income (loss)(1) |
|
|
1,590 |
|
|
|
1,809 |
|
|
|
2,582 |
|
|
|
991 |
|
|
|
(786 |
) |
|
|
(9,955 |
) |
|
|
340 |
|
|
|
1,414 |
|
Other non-interest expense |
|
|
8,970 |
|
|
|
8,842 |
|
|
|
9,715 |
|
|
|
9,104 |
|
|
|
7,829 |
|
|
|
8,233 |
|
|
|
8,356 |
|
|
|
9,344 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
4,385 |
|
|
|
3,567 |
|
|
|
3,864 |
|
|
|
2,851 |
|
|
|
1,356 |
|
|
|
(7,684 |
) |
|
|
2,072 |
|
|
|
1,713 |
|
Provision (benefit) for income taxes |
|
|
1,503 |
|
|
|
1,227 |
|
|
|
1,270 |
|
|
|
935 |
|
|
|
189 |
|
|
|
(2,382 |
) |
|
|
679 |
|
|
|
558 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
2,882 |
|
|
$ |
2,340 |
|
|
$ |
2,594 |
|
|
$ |
1,916 |
|
|
$ |
1,167 |
|
|
$ |
(5,302 |
) |
|
$ |
1,393 |
|
|
$ |
1,155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per share |
|
$ |
0.16 |
|
|
$ |
0.13 |
|
|
$ |
0.14 |
|
|
$ |
0.10 |
|
|
$ |
0.06 |
|
|
$ |
(0.29 |
) |
|
$ |
0.08 |
|
|
$ |
0.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Price (per share): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High |
|
$ |
11.68 |
|
|
$ |
14.79 |
|
|
$ |
12.50 |
|
|
$ |
14.46 |
|
|
$ |
15.50 |
|
|
$ |
17.00 |
|
|
$ |
14.50 |
|
|
$ |
13.98 |
|
Low |
|
$ |
9.68 |
|
|
$ |
9.88 |
|
|
$ |
8.44 |
|
|
$ |
6.17 |
|
|
$ |
8.80 |
|
|
$ |
12.00 |
|
|
$ |
12.51 |
|
|
$ |
9.75 |
|
|
|
|
(1) |
|
In the second quarter of 2008, non-interest income included
other-than-temporary impairment charges of $1.2 million related to preferred stock of
Freddie Mac and Fannie Mae. In the third quarter of 2008, non-interest income included
other-than-temporary impairment charges of $9.8 million related to preferred stock of
Freddie Mac and Fannie Mae, $1.1 million related to one pooled trust preferred
security, $395,000 related to one mutual fund and $208,000 related to four common
stocks. In the fourth quarter of 2008, non-interest income included
other-than-temporary impairment charges of $612,000 related to preferred stock of
Freddie Mac and Fannie Mae, $191,000 related to one mutual fund and $914,000 related
to eleven common stocks. In the first quarter of 2009, non-interest income included
other-than temporary impairment charges of $65,000 related to one mutual fund and
$292,000 related to three equity securities. No material charges were taken in the
remainder of 2009. In the second quarter of 2009 the Company recorded $867,000 of
security gains and $289,000 of gains on the sale of one-to-four family fixed rate
residential loans. Refer to Note 7 Investment Securities for additional
information on other-than-temporary impairments. |
Note 21. SUBSEQUENT EVENT
On September 21, 2009, the Company entered into an agreement to purchase the assets of
Family Choice Mortgage Company, a privately held Massachusetts mortgage origination
corporation operating in Massachusetts and Connecticut. The transaction closed on January
11, 2010 and now operates under the name of Rockville Bank Mortgage, Inc., a subsidiary of
Rockville Bank. This addition helps to expand the Companys mortgage origination business,
particularly in the area of Federal Housing Administration (FHA) loans, Veterans
Administration (VA) loans, loans to first time home buyers, and Reverse Mortgages. The
acquisition is structured as an earn-out whereby the principal of the business receives a
cash payout over seven years, at a pace to be determined by income earned after taxes by
the subsidiary. Policies and procedures have been implemented that govern expense and
revenue sharing. The subsidiary will be included within the risk management system of the
Company and is not expected to have a significant effect on the operations of the Company.
113
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
There were no changes in or disagreements with accountants on accounting and
financial disclosure as defined in Item 304 of Regulation S-K.
Item 9A. Controls and Procedures
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures:
Under the supervision and with the participation of our management, including our Chief
Executive Officer and our Chief Financial Officer, we conducted an evaluation of our
disclosure controls and procedures, as such term is defined under Exchange Act Rule
13a-15(e). Based on this evaluation, our Chief Executive Officer and our Chief Financial
Officer concluded that our disclosure controls and procedures were effective as of the
end of the period covered by this annual report.
Managements Report on Internal Control Over Financial Reporting:
Our management is responsible for establishing and maintaining adequate internal control
over financial reporting. The Companys internal control over financial reporting is
designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles.
Our internal control over financial reporting includes those policies and procedures
that:
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Pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the
Company; |
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Provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America, and that our
receipts and expenditures are being made only in accordance with authorizations
of the Companys management and Directors; and |
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Provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have a
material effect on our financial statements. |
Because of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.
Management assessed the effectiveness of the Companys internal control over financial
reporting as of December 31, 2009. In making this assessment, management used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control-Integrated Framework. Based on managements
assessment and those criteria, management believes that the Company maintained effective
internal control over financial reporting as of December 31, 2009.
The Companys independent registered public accounting firm has audited and issued a
report on the Companys internal control over financial reporting, which appears on page
65.
Item 9B. Other Information
Not applicable.
114
Part III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this Item is incorporated into this Form 10-K by
reference to the Companys definitive proxy statement (the Definitive Proxy Statement)
for its 2010 Annual Meeting of Shareholders, to be filed within 120 days following
December 31, 2009.
Item 11. Executive Compensation
The information required by this Item is incorporated into this Form 10-K by
reference to the Companys definitive proxy statement (the Definitive Proxy Statement)
for its 2010 Annual Meeting of Shareholders, to be filed within 120 days following
December 31, 2009.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
The information required by this Item is incorporated into this Form 10-K by
reference to the Companys definitive proxy statement (the Definitive Proxy Statement)
for its 2010 Annual Meeting of Shareholders, to be filed within 120 days following
December 31, 2009.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item is incorporated into this Form 10-K by
reference to the Companys definitive proxy statement (the Definitive Proxy Statement)
for its 2010 Annual Meeting of Shareholders, to be filed within 120 days following
December 31, 2009.
Item 14. Principal Accountant Fees and Services
The information required by this Item is incorporated into this Form 10-K by
reference to the Companys definitive proxy statement (the Definitive Proxy Statement)
for its 2010 Annual Meeting of Shareholders, to be filed within 120 days following
December 31, 2009.
115
Part IV
Item 15. Exhibits, Financial Statements and Financial Statement Schedules
a) The consolidated financial statements, including notes thereto, and financial
schedules required in response to this item are set forth in Part II, Item 8 of this Form
10-K, and can be found on the following pages:
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Page No. |
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1. |
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Financial Statements |
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Report of Management on Internal Control Over Financial Reporting
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64 |
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Reports of Independent Registered Public Accounting Firms
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65 |
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Consolidated Statements of Condition
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68 |
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Consolidated Statements of Operations
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69 |
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Consolidated Statements of Changes in Stockholders Equity
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71 |
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Consolidated Statements of Cash Flows
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72 |
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Notes to Consolidated Financial Statements
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74 |
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2. |
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Financial Statement Schedules |
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Schedules to the consolidated financial statements required by Article 9 of Regulation S-X and all other schedules to the consolidated financial statements have been omitted because they are either not required, are not applicable or are included in the consolidated financial statements or notes thereto, which can be found in this report in Part II, Item 8. |
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3. |
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Exhibits:
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3.1 |
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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)) |
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3.2 |
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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) |
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3.2.1 |
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Amendment dated December 12, 2007 to the Bylaws of Rockville Financial, Inc. (incorporated herein by
reference to Exhibit 3.2 to the Current Report on the Companys Form 8-K filed on December 12, 2007) |
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3.2.2 |
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Amendment and restatement dated February 13, 2008 to the Bylaws of Rockville Financial, Inc.
(incorporated herein by reference to Exhibit 3.2 to the Current Report on the Companys Form 8-K
filed on February 14, 2008) |
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3.3 |
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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)) |
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10.1 |
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Employment Agreement as amended and restated by and among Rockville Financial, Inc., Rockville Bank
and William J. McGurk, effective January 1, 2009 (incorporated by reference to Exhibit 10.1 to the Companys Annual Report on
Form 10-K for the year ended December 31, 2008 filed on March 11, 2009) |
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10.1.1 |
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Rockville Bank Extension Notice Agreement by and among Rockville Financial, Inc.,
Rockville Bank and William J. McGurk, effective January 1, 2010 filed herewith |
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10.2 |
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Employment Agreement as amended and restated by and among Rockville Financial, Inc., Rockville Bank
and Joseph F. Jeamel, Jr., effective January 1, 2009 (incorporated by reference to Exhibit 10.2 to the Companys Annual Report on
Form 10-K for the year ended December 31, 2008 filed on March 11, 2009) |
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10.2.1 |
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Rockville Bank Extension Notice Agreement by and among Rockville Financial, Inc.,
Rockville Bank and Joseph F. Jeamel, Jr., effective January 1, 2010 filed herewith |
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10.3 |
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Employment Agreement by and among Rockville Financial, Inc., Rockville Bank and John T. Lund,
effective January 4, 2010 (incorporated herein by reference to Exhibit 3.1 to the Current Report on
the Companys Form 8-K filed on January 7, 2010). |
116
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10.4 |
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Employment Agreement as amended and restated by and among Rockville Financial, Inc., Rockville Bank
and Christopher E. Buchholz, effective January 1, 2009 (incorporated by reference to Exhibit 10.4 to the Companys Annual Report on
Form 10-K for the year ended December 31, 2008 filed on March 11, 2009) |
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10.4.1 |
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Rockville Bank Extension Notice Agreement by and among Rockville Financial, Inc.,
Rockville Bank and Christopher E. Buchholz, effective January 1, 2010 filed herewith |
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10.5 |
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Employment Agreement as amended and restated by and among Rockville Financial, Inc., Rockville Bank
and Richard J. Trachimowicz, effective January 1, 2009 (incorporated by reference to Exhibit 10.5 to the Companys Annual Report on
Form 10-K for the year ended December 31, 2008 filed on March 11, 2009) |
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10.5.1 |
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Rockville Bank Extension Notice Agreement by and among Rockville Financial, Inc.,
Rockville Bank and Richard J. Trachimowicz, effective January 1, 2010 filed herewith |
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10.6 |
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Supplemental Savings and Retirement Plan of Rockville Bank as amended and restated effective December
31, 2007 (incorporated herein by reference to Exhibit 10.5 to the Current Report on Form 8-K filed
for Rockville Financial, Inc. filed on December 18, 2007) |
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10.7 |
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Rockville Bank Officer Incentive Compensation Plan (incorporated herein by reference to Exhibit
10.2.3 to the Companys Annual Report on Form 10-K for the year ended December 31, 2005 filed on
March 31, 2006) |
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10.8 |
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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) |
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10.8.1 |
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First Amendment to the Supplemental Executive Retirement Agreement for Joseph F. Jeamel, Jr.
(incorporated herein by reference to Exhibit 10.7.1 to the Current Report on Form 8-K filed for
Rockville Financial, Inc. filed on December 18, 2007) |
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10.9 |
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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) |
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10.10 |
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Rockville Bank Supplemental Executive Retirement Plan as amended and restated effective December 31,
2007 (incorporated herein by reference to Exhibit 10.9 to the Current Report on Form 8-K filed for
Rockville Financial, Inc. filed on December 18, 2007) |
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10.11 |
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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) |
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14 |
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Rockville Financial, Inc., Rockville Bank, Standards of Conduct Policy Employees (incorporated
herein by reference to Exhibit 14 to the Companys Annual Report on Form 10-K for the year ended
December 31, 2007 filed on March 17, 2008) |
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21 |
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Subsidiaries of Rockville Financial, Inc. and Rockville Bank filed herewith. |
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23.1 |
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Consent
of Independent Registered Public Accounting Firm, Wolf &
Company, P.C. filed herewith |
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23.2 |
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Consent
of Independent Registered Public Accounting Firm, Deloitte & Touche, LLP filed herewith |
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31.1 |
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Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer filed herewith. |
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31.2 |
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Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer filed herewith. |
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32.0 |
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Section 1350 Certification of the Chief Executive Officer and Chief Financial Officer attached hereto. |
117
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
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Rockville Financial, Inc.
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By: |
/s/ William J. McGurk
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William J. McGurk |
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President, Chief Executive Officer and Director
and |
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and |
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By: |
/s/ John T. Lund
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John T. Lund |
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Senior Vice President, Chief Financial Officer and Treasurer |
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Date: March 10, 2010
118
Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
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Signatures |
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Title |
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Date |
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/s/ William J. McGurk
William J. McGurk
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President, Chief Executive Officer and Director (Principal Executive Officer)
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March 10, 2010 |
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/s/ John T. Lund
John T. Lund
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Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)
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March 10, 2010 |
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/s/ Michael A. Bars
Michael A. Bars
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Vice Chairman
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March 10, 2010 |
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/s/ C. Perry Chilberg
C. Perry Chilberg
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Director
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March 10, 2010 |
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/s/ David A. Engelson
David A. Engelson
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Director
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March 10, 2010 |
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/s/ Pamela J. Guenard
Pamela J. Guenard
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Director
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March 10, 2010 |
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/s/ Joseph F. Jeamel, Jr.
Joseph F. Jeamel, Jr.
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Executive Vice President and Director
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March 10, 2010 |
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/s/ Raymond H. Lefurge, Jr.
Raymond H. Lefurge, Jr.
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Chairman
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March 10, 2010 |
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/s/ Stuart E. Magdefrau
Stuart E. Magdefrau
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Director
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March 10, 2010 |
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/s/ Thomas S. Mason
Thomas S. Mason
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Director
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March 10, 2010 |
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/s/ Peter F. Olson
Peter F. Olson
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Director
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March 10, 2010 |
119
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Signatures |
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Title |
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Date |
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/s/ Rosemarie Novello Papa
Rosemarie Novello Papa
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Director
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March 10, 2010 |
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/s/ Richard M. Tkacz
Richard M. Tkacz
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Director
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March 10, 2010 |
120
EXHIBIT INDEX
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Exhibit |
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Number |
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Description |
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3.1 |
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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)) |
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3.2 |
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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) |
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3.2.1 |
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|
Amendment dated December 12, 2007 to the Bylaws of Rockville Financial, Inc. (incorporated herein by
reference to Exhibit 3.2 to the Current Report on the Companys Form 8-K filed on December 12, 2007) |
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3.2.2 |
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Amendment and restatement dated February 13, 2008 to the Bylaws of Rockville Financial, Inc.
(incorporated herein by reference to Exhibit 3.2 to the Current Report on the Companys Form 8-K
filed on February 14, 2008) |
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|
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3.3 |
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|
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)) |
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|
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|
|
10.1 |
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|
Employment Agreement as amended and restated by and among Rockville Financial, Inc., Rockville Bank
and William J. McGurk, effective January 1, 2009 (incorporated by reference to Exhibit 10.1 to the Companys Annual Report on
Form 10-K for the year ended December 31, 2008 filed on March 11, 2009). |
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|
|
|
|
10.1.1 |
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|
Rockville Bank Extension Notice Agreement by and among Rockville Financial, Inc.,
Rockville Bank and William J. McGurk, effective January 1, 2010 filed herewith. |
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10.2 |
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Employment Agreement as amended and restated by and among Rockville Financial, Inc., Rockville Bank
and Joseph F. Jeamel, Jr., effective January 1, 2009 (incorporated by reference to Exhibit 10.2 to the Companys Annual Report on
Form 10-K for the year ended December 31, 2008 filed on March 11, 2009). |
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10.2.1 |
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Rockville Bank Extension Notice Agreement by and among Rockville Financial, Inc.,
Rockville Bank and Joseph F. Jeamel, Jr., effective January 1, 2010 filed herewith. |
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10.3 |
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Employment Agreement by and among Rockville Financial, Inc., Rockville Bank and John T. Lund
effective January 4, 2010 (incorporated by reference to Exhibit 3.1 to the Current Report on the
Companys Form 8-K filed on January 7, 2010) |
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10.4 |
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Employment Agreement as amended and restated by and among Rockville Financial, Inc., Rockville Bank
and Christopher E. Buchholz, effective January 1, 2009 (incorporated by reference to Exhibit 10.4 to the Companys Annual Report on
Form 10-K for the year ended December 31, 2008 filed on March 11, 2009). |
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10.4.1 |
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|
Rockville Bank Extension Notice Agreement by and among Rockville Financial, Inc.,
Rockville Bank and Christopher E. Buchholz, effective January 1, 2010 filed herewith. |
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10.5 |
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Employment Agreement as amended and restated by and among Rockville Financial, Inc., Rockville Bank
and Richard J. Trachimowicz, effective January 1, 2009 (incorporated by reference to Exhibit 10.5 to the Companys Annual Report on
Form 10-K for the year ended December 31, 2008 filed on March 11, 2009). |
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10.5.1 |
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|
Rockville Bank Extension Notice Agreement by and among Rockville Financial, Inc.,
Rockville Bank and Richard J. Trachimowicz, effective January 1, 2010 filed herewith. |
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10.6 |
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Supplemental Savings and Retirement Plan of Rockville Bank as amended and restated effective December
31, 2007 (incorporated herein by reference to Exhibit 10.5 to the Current Report on Form 8-K filed
for Rockville Financial, Inc. filed on December 18, 2007) |
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10.7 |
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Rockville Bank Officer Incentive Compensation Plan (incorporated herein by reference to Exhibit
10.2.3 to the Companys Annual Report on Form 10-K for the year ended December 31, 2005 filed on
March 31, 2006) |
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10.8 |
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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) |
1
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Exhibit |
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Number |
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Description |
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10.8.1 |
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First Amendment to the Supplemental Executive Retirement Agreement for Joseph F. Jeamel, Jr.
(incorporated herein by reference to Exhibit 10.7.1 to the Current Report on Form 8-K filed for
Rockville Financial, Inc. filed on December 18, 2007) |
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10.9 |
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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) |
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10.10 |
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Rockville Bank Supplemental Executive Retirement Plan as amended and restated effective December 31,
2007 (incorporated herein by reference to Exhibit 10.9 to the Current Report on Form 8-K filed for
Rockville Financial, Inc. filed on December 18, 2007) |
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10.11 |
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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) |
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|
14 |
|
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Rockville Financial, Inc., Rockville Bank, Standards of Conduct Policy Employees (incorporated
herein by reference to Exhibit 14 to the Companys Annual Report on Form 10-K for the year ended
December 31, 2007 filed on March 17, 2008) |
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|
|
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|
|
21 |
|
|
Subsidiaries of Rockville Financial, Inc. and Rockville Bank filed herewith. |
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|
|
|
|
|
23.1 |
|
|
Consent
of Independent Registered Public Accounting Firm,
Wolf & Company, P.C. filed herewith |
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|
|
|
|
|
23.2 |
|
|
Consent
of Independent Registered Public Accounting Firm, Deloitte &
Touche, LLP filed herewith |
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|
|
|
|
|
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. |
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|
|
|
|
|
32 |
|
|
Section 1350 Certification of the Chief Executive Officer and Chief Financial Officer attached hereto. |
2