ROCKVILLE, Conn., Jan. 30, 2013 (GLOBE NEWSWIRE) -- Rockville Financial, Inc. ("Rockville Financial" or the "Company") (Nasdaq:RCKB), the holding company for Rockville Bank (the "Bank"), today announced net income of $4.3 million, or $0.16 per diluted share, for the quarter ended December 31, 2012, compared to net income of $4.0 million, or $0.14 per diluted share, for the quarter ended December 31, 2011. For the year 2012, net income is $15.8 million, or $0.56 per diluted share, compared to $7.1 million, or $0.25 per diluted share for the year 2011.

"I am pleased to announce that Rockville Financial, Inc. reported record annual earnings, and that the fourth quarter included strong fundamentals, increased commercial loan growth, record residential mortgage originations and continued strong asset quality," stated William H. W. Crawford, IV, President and Chief Executive Officer of Rockville Financial, Inc. and Rockville Bank. "The Company's quarterly results, however, do reflect the pressure that the net interest margin is under and the volatile nature of the mortgage banking business. During the quarter, yields on loans and securities and mortgage spreads declined due to the continued low interest rate environment and the actions by the Federal Reserve Board. While 2013 will likely be a tough operating environment for the banking industry, Rockville's management will continue its disciplined management approach and will make decisions that are in the long term best interests of its shareholders."

Earnings in both years were affected by non-core income and expense. A reconciliation of these non-GAAP measures may be found in the tables titled "Reconciliation of Non-GAAP Financial Measures."

Financial Highlights

• Record annual net income of $15.8 million in 2012, 2.2 times 2011 net income
• Record annual diluted earnings per share of $0.56 in 2012 compared to $0.25 in 2011
• 20% annual core operating revenue growth of $13.3 million
• 11% quarterly core operating revenue growth, compared to fourth quarter 2011
• 3% decrease in core operating revenue, compared to linked quarter
• Core operating expense were flat compared to linked quarter
• $1.3 million net gain from sales of loans, compared to $2.5 million in the linked quarter
• 3.74% tax equivalent net interest margin, compared to 3.80% in the linked quarter
• 13% growth in deposits in 2012
• 16% growth in non-interest-bearing deposits in the year
• 0.13% annualized net loan charge-offs to average loans
• 0.88% ROA in the fourth quarter of 2012, 0.84% ROA for the year 2012
• Pension plan hard-freeze as of year-end 2012

Loan Production Highlights

• 15% annualized linked quarter loan growth
• 29% annualized linked quarter commercial loan growth
• 18% commercial loan growth in 2012
• Record annual residential mortgage originations of $294 million
• Record quarterly residential mortgage originations of $87 million
• 141% annual increase in residential mortgage production
• 113% increase in residential mortgage production, compared to fourth quarter of 2011
• 328% increase in purchase mortgage production, compared to fourth quarter of 2011

Capital Highlights

• 30% total shareholder return year-over-year, compared to 22% SNL thrift index
• 54% dividend increase since 2011 conversion
• 61% of stock buyback plan completed at $11.97 per share average cost, compared to $12.09 per share average closing price
• 94% dividend payout ratio in 2012, including special cash dividend

Fourth Quarter Talent Recruitment Highlights

• 6 branch team members for new West Hartford Banking Center opening in Q1 2013
• 2 financial advisors and sales assistant for Rockville Financial Services subsidiary
• Senior Vice President team leader for Western C&I Commercial Team
• 25 net new FTE, 331 at year-end up from 306 at linked quarter-end comprised largely of commercial credit and mortgage banking support positions

Operating Results

Rockville Financial reported record fourth quarter and annual earnings, and achieved these results despite the increased expense incurred in the fourth quarter and during the year from building out the infrastructure in both technology and human capital.

The Company's total revenue increased by 3% in the fourth quarter compared to the linked quarter, however core revenue decreased by 3%. The decrease in core revenue reflects the volatility in market spreads for sales of residential mortgages to the secondary market and the reduced volume sold to the secondary market on a linked quarter basis. As a result of the expansion of the Company's mortgage banking business in 2012, the Company achieved record originations during the quarter, however historically high margins recognized on sales in the third quarter declined to a more normalized level in the fourth quarter. The Company sold residential mortgage loans totaling $49 million in the fourth quarter 2012 at an average spread of 2.73% compared to $64 million at an average spread of 3.95% in the third quarter 2012 due to timing differences within the application process. This business line continues to evolve and will continue to be a key line of business for the Company.

Operating revenue increased from the linked quarter primarily due to a $1.0 million payment the Company received from its data processing vendor, Jack Henry & Associates. The payment was in relation to the service disruptions our customers experienced when the Jack Henry & Associates operations center located in Lyndhurst, New Jersey was impacted by Hurricane Sandy in the fourth quarter. Noninterest income was negatively impacted during the quarter by the waiving of $107,000 of NSF fees during the service disruption. The Company incurred $503,000 of additional expense directly related to the service disruption. The Company recorded higher salaries and employee benefits during the quarter of $461,000 in additional compensation costs paid to those customer service and back office representatives assisting our customers through the delay in their items processing, and also recorded approximately $42,000 of other additional expenses related to the service disruption.

Operating revenue driven by the Company's investment subsidiary, Rockville Financial Services ("RFS"), increased by $28,000, or 37%, from the linked quarter. While not a significant component to the quarter's results, noteworthy is the evolution of this business line to include four new financial advisors. At year-end this division was comprised of five full time financial advisors and one full time sales assistant with a combined 80 years of industry experience to better serve the needs of Rockville's customers and branch network. The Company has recently re-aligned its advisor territories to better serve its existing RFS clients. The new West Hartford Banking Center will have a dedicated full time financial advisor who is a Certified Financial Planner.

Net interest income was stable and increased slightly by $63,000 to $17.0 million in the fourth quarter compared to the linked quarter. Average earning assets increased by $33 million, or 2%, due to continued business development resulting in commercial loan growth and strategic decisions to increase available for sale investment purchases. The tax equivalent net interest margin for the fourth quarter of 2012 was compressed by 6 basis points to 3.74%, compared to 3.80% for the third quarter of 2012 as a result of the 8 basis points decline in the tax equivalent yield on interest-earning assets outpacing the 3 basis points decline in the cost of interest-bearing deposits. The reduction in the average yield during the fourth quarter from both a linked quarter and year-over-year basis, was primarily attributable to the impact that the extended low interest rate environment has had on the yields of new loan originations and adjustable rate mortgage repricings. The cost of interest-bearing deposits decreased across all comparable periods as a result of the Company's continued focus on growing low cost core deposits, particularly with the commercial banking expansion, and on reducing the cost of funds as well as the continued migration out of time deposits to other interest bearing deposit types. The Company's strategic decision to take steps to shorten the duration of earning assets during the quarter while extending funding will better position the balance sheet for rising interest rates and enhance its long-term earnings but will adversely impact short-term earnings.

The fourth quarter provision for loan losses increased $148,000, or 19%, to $909,000 for the three months ended December 31, 2012 compared to $761,000 for the comparable 2011 period due to strong growth in the loan portfolio during this time period. Net charge-offs for the fourth quarter were $511,000, or 0.13% annualized as a percentage of average loans outstanding, an increase from $263,000, or 0.07% annualized as a percentage of average loans outstanding, in the prior year period. Provision expense continues to be assessed in correlation to the Company's loan growth and risk profile.

On a linked quarter basis, non-interest expense increased $518,000 to $15.0 million in the fourth quarter 2012, while core operating expense basically remained level, increasing by only $15,000 to $14.5 million. The aforementioned $503,000 in compensation and other expenses related to the Jack Henry & Associates service disruption were not included in fourth quarter core operating expense. Core salaries and employee benefits expense increased $506,000, or 6%, over the linked quarter due to both the increase in FTE ($328,000) and the increase in commissions and incentive expense related to record loan originations ($272,000). One significant driver to controlling expense over the linked quarter was the decrease of $324,000 in professional fees. The fourth quarter 2012 non-interest expense as a percentage of average assets and the efficiency ratio on a core basis were 2.96% and 70.10%, respectively.

For the year 2012, core operating expense totaled $54.0 million and increased by $8.9 million, or 20%, from total core operating expense of $45.1 million in 2011. The primary driver in the increase in core operating expense in 2012 was the $7.3 million increase in core salaries and employee benefits expense attributable to the infrastructure investment as the Company transitions to a commercial banking model from a mutual thrift model. FTE increased to 331 at December 31, 2012 from 281 at December 31, 2011 supporting expansion in the revenue driving commercial and residential mortgage banking divisions. This infrastructure growth will provide the Company with the ability to continue strong organic growth to mitigate potential margin compression in 2013. Additionally, due to the hard freeze of the Company's pension plan as of December 31, 2012, the fourth quarter of 2012 will be the last quarter of higher pension expense, having estimated an incremental $1.1 million in annual savings following the freeze.

Organic Loan and Deposit Growth Continues; Enhanced by Commercial and Mortgage Banking Expansion

Growth in all major categories of the balance sheet are reflective of the significant human capital and infrastructure investment the Company made in 2012. Expansion of the commercial lending division led to a $130 million, or 9%, increase in net loans for the year. The commercial division also meaningfully contributed to the 13% deposit growth during the year through demand deposit and municipal deposit acquisition. Expansion of the mortgage banking division resulted in a 113% increase in fourth quarter originations over the prior year and a 328% increase in purchase mortgages. The $90 million, or 60%, increase in the available for sale securities portfolio was attainable as a direct result of the expertise added in the Treasury department. Through these expansion efforts, total assets increased $248 million, or 14%, to $2.0 billion at December 31, 2012 from December 31, 2011.

The available for sale securities portfolio increased $90 million to $241 million at December 31, 2012 from $151 million at December 31, 2011, largely from purchases of AA or better rated municipal bonds. The municipal bonds represent a wide geographic diversification and consist of both general obligation and revenue bonds. As a result of the municipal bond purchases during the year, the Company's effective tax rate decreased to 29.6% in 2012 from 34.5% in 2011.

Net loans grew organically during the year by $130 million due to the aforementioned continued focus on commercial banking and expansion of that team in 2012. Specifically, the commercial real estate portfolio increased $103 million, or 17%, and the commercial business portfolio increased $28 million, or 20%. During the fourth quarter the commercial loan portfolio grew by $58 million, or 29% for the linked quarter on an annualized basis despite larger than normal payoffs of $25 million during the quarter resulting from the Company's disciplined approach to asset quality. The Company will not match extremely favorable pricing or underwriting and structure pressures of competitor banks if those considerations do not meet the Company's asset quality standards. The growth in commercial deposits is also reflective of the expansion of the commercial team, both from the perspective of increased commercial banking relationships as well as the increase in municipal deposits as a result of sales efforts by the cash management team. Municipal deposits increased by $57 million, or 184%, during 2012. The New Haven and Northern loan production teams actively take market share from large bank competitors and this organic growth strategy will be further enhanced with the introduction of a new commercial team in the West Hartford market in early 2013.

The new full-service West Hartford "Banking Center" will offer traditional banking services along with onsite specialized mortgage professionals, financial advisors, commercial bankers, and private banking professionals to meet all of our customer needs in one central convenient location. Mary Chase has been named Vice President, Branch Officer of the new location and is a long-time West Hartford resident with banking experience spanning three decades in Connecticut, mostly serving customers from West Hartford and its surrounding communities. Mary is joined by Josh Gorman recently named Senior Vice President for the newly established Western C&I Commercial Team. Josh has built a strong reputation among other client managers for his expertise in commercial lending and achieving a long list of successes in managing large business client relationships. Together they will lead the West Hartford team comprised of 14 banking professionals who joined Rockville in the fourth quarter 2012.

The Company continued to make enhancements to the mortgage banking business model in the fourth quarter. While on-balance sheet growth in residential loans was modest at $2 million, or 0.4%, in 2012, this is reflective of the Company's strategy to sell fixed rate residential loans to the secondary market in the historically low interest rate environment experienced during the past year. Residential mortgage originations totaled $294 million for the year, a 141% increase from $122 million in the prior year. During the fourth quarter 2012 the Company originated 443 loans totaling $87 million, an increase of 105% and 113%, respectively, from 216 loans totaling $41 million in the fourth quarter 2011. Mortgage originations increased 5% on a linked quarter basis. Additionally, the transition to mortgage loan officers in the business model allows the Company to foster relationships with local realtors to target purchase mortgage production and has increased the volume of purchase mortgages to $27 million in the fourth quarter 2012 as compared to $6 million in the prior year period, a 328% increase in that production source. For the year purchase mortgages totaled $95 million as compared to $33 million in 2011.

Deposits totaled $1.50 billion at December 31, 2012 and increased $178 million from $1.33 billion at December 31, 2011, reflecting a $33 million, or 16%, increase in non-interest bearing deposits and a $145 million, or 13%, increase in interest bearing deposits. The increase in interest bearing deposits included the purchase of $61 million of brokered time deposits reflecting the Company's philosophy to opportunistically diversify funding sources at a lowest cost. The weighted average cost of brokered deposits was 0.80% at December 31, 2012, with balances representing 4.1% of total deposits.

Federal Home Loan Bank of Boston advances increased $77 million year-to-date to $143.1 million at December 31, 2012. Advances were employed across the maturity curve with the majority of the increase consisting of short term advances with terms of one year or less and a weighted average cost of 0.33%.

Asset Quality

Fourth quarter asset quality metrics remain very favorable. Non-performing assets increased $3.3 million to $18.9 million at December 31, 2012 from $15.6 million at December 31, 2011. The ratio of non-performing assets to total assets increased 6 basis points to 0.95% at December 31, 2012 from 0.89% at December 31, 2011. Loans on non-accrual increased $3.5 million to $16.1 million at December 31, 2012 from $12.6 million at December 31, 2011. Included in non-accrual loans are non-accruing troubled debt restructurings (TDR). TDRs decreased $232,000 to $3.1 million at December 31, 2012 from $3.4 million at December 31, 2011. The ratio of non-performing loans to total loans increased 14 basis points to 1.00% at December 31, 2012 from 0.86% at December 31, 2011. At December 31, 2012, the allowance for loan losses as a percentage of non-performing loans and of total loans outstanding was 114.88% and 1.15%, compared to 127.08% and 1.09% at December 31, 2011, respectively.

Dividend

The Board of Directors declared a cash dividend on the Company's common stock of $0.10 per share to shareholders of record at the close of business on January 28, 2013 and payable on February 4, 2013. This dividend equates to a 3.08% annualized yield based on the $12.98 average closing price of the Company's common stock in the fourth quarter of 2012. The Company has paid dividends for 27 consecutive quarters. The dividend payout ratio for the quarter ended December 31, 2012 was 66%, excluding the special cash dividend the Company paid of $0.16 per share in December 2012.

Stock Repurchase Program

In accordance with State of Connecticut Department of Banking mutual conversion banking regulations the Company was eligible to adopt a stock repurchase program at the one year anniversary of its March 3, 2011 stock conversion. As such, the Company's Board of Directors approved a buyback plan on March 2, 2012 and commenced the plan upon receiving satisfactory response from the Company's regulator, the Federal Reserve Bank of Boston, on March 13, 2012. Under this plan, the Company may repurchase up to 2,951,250 shares, or 10% of the outstanding shares at the time the plan was approved. As of December 31, 2012, the Company had repurchased 1,806,476 shares at an average cost of $11.97 per share. The average closing price of the Company's common stock over this time period was $12.09 per share.

The Company repurchased 450,097 shares during the quarter ended December 31, 2012, at an average price of $13.05, which was 115% of the Company's tangible book value of $11.33. The average closing price during the fourth quarter was $12.98, or 115% of the Company's tangible book value.

Management Comments

"Rockville significantly returned capital to its shareholders in 2012 by increasing its quarterly dividend, paying a special cash dividend and buying back 61% of its share repurchase plan. When including both dividends and the stock buyback program, the Company returned to its shareholders 231% of its net income for the year ended December 31, 2012. Our total shareholder return year-over-year is 30% compared to the SNL thrift index of 22%," stated William (Bill) H. W. Crawford, IV, President and Chief Executive Officer (CEO). "Rockville Financial will continue to look for opportunities to hire revenue producing team members in the commercial and mortgage banking divisions and financial advisors in its subsidiary, Rockville Financial Services. The Company did contract with an efficiency consultant in the fourth quarter with the goal to benchmark itself against other high performers in order to fine tune processes and position the Company for success in the future."

Investor Conference Call

Rockville Financial, Inc. will host a conference call on Thursday, January 31, 2013 at 10:00 a.m. Eastern Time (ET) to discuss the Company's fourth quarter results. Those wishing to participate in the call may dial toll-free 1-877-317-6016. A telephone replay of the call will be available through February 14, 2013 by calling 1-877-344-7529 and entering conference number 10023216. A podcast will be available on the Company's website for an extended period of time.

About Rockville Financial, Inc.

Rockville Financial, Inc. is the parent of Rockville Bank, which is a 22-branch community bank serving Tolland, Hartford and New London counties in Connecticut. Rockville Bank has established a New Haven County Commercial Banking Office in Hamden, Conn., and opened a full service Banking Center in West Hartford, Conn in January 2013. For more information about Rockville Bank's services and products, call (860) 291-3600 or visit www.rockvillebank.com. For more information about Rockville Financial, Inc., visit www.rockvillefinancialinc.com.

The Rockville Financial, Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=10954

Forward Looking Statements

This press release may contain certain forward-looking statements about the Company. Forward-looking statements include statements regarding anticipated future events and can be identified by the fact that they do not relate strictly to historical or current facts. They often include words such as "believe," "expect," "anticipate," "estimate," and "intend" or future or conditional verbs such as "will," "would," "should," "could," or "may." Forward-looking statements, by their nature, are subject to risks and uncertainties. Certain factors that could cause actual results to differ materially from expected results include increased competitive pressures, changes in the interest rate environment, general economic conditions or conditions within the securities markets, and legislative and regulatory changes that could adversely affect the business in which the Company and its subsidiaries are engaged.