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Executives

Marliese Shaw - Senior Vice President, Investor Relations

Bill Crawford - President and Chief Executive Officer

Eric Newell - Chief Financial Officer

Marino Santarelli - Chief Operating Officer

Scott Bechtle - Chief Risk Officer

Mark Kucia - Head, Commercial Banking

Brandon Lorey - Head, Consumer Lending

Analysts

Matt Ferguson - Sandler O’Neill & Partners

Damon DelMonte - KBW

Matthew Breese - Sterne Agee

Rockville Financial, Inc. (RCKB) Q4 2013 Earnings Conference Call January 28, 2014 10:00 AM ET

Operator

Good day and welcome to the Rockville Financial Fourth Quarter 2013 Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions) After today’s presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Ms. Marliese Shaw, Senior Vice President, Investor Relations. Please go ahead.

Marliese Shaw - Senior Vice President, Investor Relations

Thank you, Denise, and good morning, everyone. Welcome to our fourth quarter conference call. Before we begin, we would like to remind you to read our Safe Harbor advisement on forward-looking statements on our earnings announcement. Forward-looking statements, by their nature, are subject to risks and uncertainties. Certain factors could cause actual results to differ materially from expected results. Our comments today are intended to qualify for the Safe Harbor afforded by that advisement.

And now, I would like to introduce Bill Crawford, our Chief Executive Officer and President.

Bill Crawford - President and Chief Executive Officer

Thanks Marliese. Good morning and thank you for joining us on today’s call and for your continued interest in our company. Yesterday afternoon, we released fourth quarter annual 2013 earnings. This morning, I will provide some insight into the company’s key strategies and my thoughts on the pending merger with United Financial Bancorp. And then my team will provide a more detailed overview of the quarter and the respective business lines.

With me this morning is Eric Newell, our CFO; Marino Santarelli, our Chief Operating Officer; Scott Bechtle, our Chief Risk Officer; Mark Kucia, Head of Commercial Banking; and Brandon Lorey, Head of Consumer Lending.

I am pleased the company achieved 11% core earnings per share growth in 2013, particularly given the difficult operating environment for banks during the year. As of year end, Rockville’s 1-year total shareholder return was 14%. Our 3-year total shareholder return was 95% and it increased the cash dividend to our shareholders by 34% since 2011 conversion. Our asset quality and overall risk management practices remained strong. In fact, Rockville’s asset quality metrics are in the top quartile for all U.S. banking firms.

We had 17% loan growth, 15% deposit growth, record annual residential lending originations and continued excellent customer service metrics in all lines of business evidenced our success in community banking. Although the mortgage market dynamics in the fourth quarter were challenging, I am pleased with the progress we are making towards increasing our capacity to produce quality consumer and mortgage asset generation. While this business has volatility, we are well prepared to manage risk and opportunity in this business throughout the cycle.

We continue to attract and retained many of the very best bankers in New England. This is our ultimate sustainable competitive advantage. Recruitment highlights for the year included introduction of very successful private banking team and additional highly experienced commercial lender for our West Hartford markets, a new team for our recently opened Hamden branch location, and 11 additional commission mortgage loan officers in our newly created position, SVP of Virtual Banking.

As you can see in 2013, we continued making investment in revenue producers, technology and branches that we held core non-interest expense relatively flat for the last six quarters by finding cost saves to fund investments in our future. We also better positioned the company for potential rise in interest rates through the introduction of the loan level hedge program as well as additional variable rate loans and investments placed into our portfolio during the year. We are diligently working and executing on our strategic merger vehicles with the United Financial Bancorp and we are making good progress. This merger gives us the opportunity to transform both companies into a highly efficient growth company focused on providing a differentiated customer experience enabling us to take share and provides solid risk adjusted returns for our shareholders.

I’d also thank my Rockville Bank teammates and our Board of Directors for their dedication and commitment in 2013. While we are prepared for continued difficult operating environment, I am very bullish by prospects in the years ahead, particularly as we joined forces with United Financial.

Now, I’d like to turn the call over to Eric Newell, our Chief Financial Officer to provide some further detail in the quarter and year end results.

Eric Newell - Chief Financial Officer

Thank you, Bill and good morning. My comments today will complement the information we provided in the earnings release. The quarter was influenced by non-core items which we provided reconciliation for at the end of the release. Core net income for the quarter of $3.3 million or $0.13 per share was negatively influenced by changes in the strategy with our mortgage business during the quarter. I will speak more on that in a moment.

First time, I wanted to speak to the net interest margin. We reported generally flat net interest income on a linked-quarter basis despite growing the earning assets 4%. The margin compressed 9 basis points in the quarter. In my commentary on our last earnings release call, I mentioned that the compression would moderate from early experience in 2013. The major drivers for this period’s compression are the following in the order of magnitude.

First, the yields of new loans that we are originating in the residential mortgage portfolio are weighted towards adjustable rate products, which have lower yields than our current portfolio yields. Furthermore, with the sale of higher yielding loans into the secondary markets during the third quarter, yields were negatively impacted in the fourth quarter causing like 17 basis point compression in the residential mortgage portfolio, which represents 22% of earning assets. Second, the commercial portfolio representing 49% of earning assets experienced a compression of 10 basis points during the quarter driven by the high origination level on LIBOR-based adjustable rate loans.

Next, we had a one basis point increase in the cost of interest-bearing funding largely driven promotional pricing is available for new customers and as a retention tool to mitigate disintermediation of deposits on the banks. These promotional prices that we offer a lot of flexibility to step down to lower rates meaning the company is not locked into expensing promotional rates for fixed terms and we may continue to offer promotional products when relevant. Finally, while the investment portfolio yields remain flat it could become slightly more of our earning asset mix.

Looking ahead to the first half of 2014, a trend in our margin will not be reflective of what we have reported in 2013. We have communicated our strategy to reduce interest rate risk and become neutral by emphasizing the origination of variable rate assets. We have been successful in adjusting the balance sheet structure to position us for raising rate environment. However, we will look to balance current period net interest income and the interest rate risk by looking at potential opportunities to maintain or moderately increase the duration of assets and continue to take advantage of the anchored short-term rates with our wholesale funding channel.

The investment portfolio which we signaled would grow as a percentage of assets in 2013 will not likely become a bigger portion on the balance sheet in 2014. Given the duration of the low interest rate environment and the increase of interest rates between 3 and 10 years, continued addition of adjustable rate residential originations will not have a significant impact on our yields, because new production is approaching the portfolio yield.

Finally, we will continue to emphasize and reward our producers for growing loan cost funding. The success of which will hopefully reduce any upward bias in the cost of interest-bearing deposits to fund our earning asset growth.

Mortgage banking influenced our core results during the quarter as we evidenced from the significant reduction in the gain on the sale of loans. With the raising interest rates and volatility during the second half of 2013 we found that our local competition is often slow to react to interest rate increases preventing the company from changing its rates as quickly as you wish.

Furthermore, in order for management to understand the decision of hold versus selling new mortgage originations, we developed the return on equity model to report on the level of shareholder value created when holding or selling originations at given interest rates. This model complements ongoing analysis on breakeven spreads we wish to see in order to sell new originations into the secondary markets. During the end of the third quarter new originations fell under modeled breakeven spread and our ROE model showed and was more advantageous on a return basis to hold current production.

As we mentioned in the release, market spreads have improved somewhat over the last couple of weeks. If we continue to see spreads at this level, we anticipate selling a portion of our loans into the secondary market which will be reflected in our second quarter results. We have invested in talent and technology on our secondary market desk which continually monitors rates and if markets rallied we have the capability to sell recent production. Importantly, we continue to show market share gains and the ability to produce originations that will improve net interest income over time. We remain cognizant of ensuring that mortgage banking is the life science for our balance sheet. As time when many of peers are withdrawing from the mortgage business, we continued to invest. Brandon Lorey will provide more details on how we are shaping the business.

We continued to show disciplined expense management. Our core linked-quarter non-interest expense was relatively flat at $15 million and has been reported at this level for the last six consecutive quarters. For the year, core expense increased $4.9 million or 9%. This expense represents continued investment in revenue-producing FTEs. Success of our producers, which drove incentive payouts and higher commissions as well as non-rental revenue generating expenses, such as occupancy cost to support our growth in the Connecticut market. While core operating leverage slipped 1% in 2013, actions taken in the second and third quarters to reduce staff and closing underperforming branch are examples of actions we undertook to position the company for improved operating leverage in future periods.

And I wanted to spend some time updating you on the progress Rockville and United are making with the merger of equals we announced on November 15 last year. As you likely know, we have filed our S-4 with the Securities and Exchange Commission and filed our first amendment on January 17. Rockville has filed regulatory applications with the Connecticut Department of Banking, the FDIC and the Federal Reserve Bank. At this time, we continue to believe that in early second quarter (indiscernible) is achievable.

Since our announcement, we have pulled together now with 60 individuals from both Rockville and United to work together on several integration teams that assist six senior leaders in that Integration Management Office. These teams are diligently working together in the discovery process and preparing to make recommendations on go-forward strategy and decisions for the new United. Importantly, we are making progress with our recently announced staff selection process that our senior managers will use to build out their teams. I have been working very closely with the human resources integration team in order to ensure mild cost savings are delivered. The Technology Steering Committee has hired consultants and that team has been actively working with both companies to understand how we currently interact with our technology partners and to also understand strategically how management expects the new United to interact with our customers.

The process of selecting a core provider is on schedule and will be an important inflection point for the integration discovery process. We are not prepared to discuss specifics on our technology provider as we continue to be in negotiations with both Rockville and United’s current technology partners. We continue to expect we can achieve a data conversion in the fourth quarter of 2014. We recognized $2.1 million of merger expenses in the quarter, which impacted our GAAP net income. Of the expenses recognized, the majority are related to professional services used during the due diligence and regulatory application process as well as consultancy to support integration management teams.

At this time, Brandon Lorey will provide further details on the developments in the mortgage banking business.

Brandon Lorey - Head, Consumer Lending

Thank you, Eric and good morning everyone. We communicated to investors last quarter that we would expect more origination volume in the fourth quarter reflecting lower refinance volume and normal fourth quarter seasonality shifts in the purchase market. Production for the quarter reflected those expectations and declined to $60 million from $70 million or 14% from the linked-quarter. Despite this fourth quarter decline, Rockville increased its overall position from a market share perspective in the State of Connecticut moving from 21 in 2012 to 16 in 2013. Furthermore, this decline is not reflective of the stability in production for the year or management’s expectations for production going forward. The company continues to initiate actions to increase production capacity while maintaining current processing expense, introducing further efficiencies and implementing the ability to sell to multiple investors at high margins.

The expansion of our mortgage loan officer team and the relationships with realtors has allowed the organization to successfully shift to a purchase market model with purchase volume constituting over 62% of fourth quarter 2013 volume compared to 31% a year ago. The company continues to enhance its production capacity. Both the numbers have experienced mortgage loan officers and in expanding two additional robust markets. As of year end, the company had increased the number of loan offices to 23 from 17 in the linked-quarter and from 12 at the prior year end.

Additionally, the company announced last week the expansion of its mortgage lending market through the introduction of Loan Production Offices in Fairfield County, Connecticut and Eastern Massachusetts. Both of these new locations will be led by very experienced, recognized and accomplished mortgage banking professionals. The opening of these Loan Production Offices will allow the company some diversification from slower to respond competitors in the Hartford market as well as a greater application base. At the same time, we are opportunistically seeking mortgage loan officers to grow the business. We have been diligently working to optimize our current structure to improve efficiencies and turnaround times. The number of underwriters, processors and closers for this business has decreased to 18 at year end from 24 at the prior period, year end. Products growing in volume over the last quarter include adjustable rate mortgages and jumbo mortgages, which totaled $26 million or 43% of total originations in the fourth quarter to just over - compared to just over 11% of ARM and jumbo production in the first quarter.

Given that the company sold $212 million and $139 million of residential mortgages into the secondary market in 2013 and 2012 respectively, we had the capacity to introduce current mortgage production into portfolio and are comfortable with the resulting impact on the company’s interest sensitivity position particularly given the mix of the current production.

Additionally it is important for the company to retain a strong on-balance sheet residential mortgage position for purposes of collateral for corporate borrowings as well as the contribution to earning asset growth. While the company reported a net increase in on-balance sheet residential mortgages for the first quarter since mid 2012, gains on sales of loans in the secondary market decreased significantly. At times the gain on sales will be volatile or to disadvantage to a portfolio-based approach due to market conditions and competitor pricing.

As Eric discussed the company has implemented a return on equity model to determine when it is more favorable to sell loans for the (venture) portfolio production. And the company retains the ability to sell shelf production when an attractive secondary market returns. Additionally the company is implementing multiple secondary options in order to ensure maximum pricing on loan sales when it is in our best interest to do so. Furthermore, the division continues to move towards variable cost structures when it’s possible through its expansion of incentive-based pay constructs and investigation of mortgage subservicing. As a result mortgage banking will continue to be a significant driver to the company’s profits.

Once the company merges with United Financial Bancorp, we expect to keep accelerating our gain on sales and earning asset growth from the mortgage business line, but it will become a smaller segment of the company’s total revenue and core earnings per share that’s removing some of the volatility from the company’s revenue base. Given the direct background and balance sheets of both institutions, residential mortgage lending is a core business line for the company going forward. It will continue to improve and refine our operations to maximize shareholder value throughout different markets as well as interest rate in the secondary market spread cycles.

And now I will turn the call over to Mark Kucia who will discuss the company’s Commercial Banking business.

Mark Kucia - Head, Commercial Banking

Thank you, Brandon, and good morning everyone. The company reported strong 17% growth in the commercial loan portfolio in 2013 increasing the portfolio by $155 million over the year. The growth for the year was realized almost equally across both the commercial real estate and C&I portfolio. The pipeline continues to be solid and as they are boosted by the introduction and expansion of our private banking team and the expansion of our Western Region C&I team during the year.

We also expanded our Cash Management team in 2013, adding a Cash Management Officer through our New Haven Region. We continue to look for tough commercial banking talent to increase our wealth production capacity stabilize. We have a track record of year-after-year solid commercial loan growth and we believe that the current pipeline level support a continuation of that trend. During 2013 we allowed approximately $25 million in commercial credits to pay-off due to aggressive terms being offered by competing banks.

While the environment remains extremely competitive, the bank will continue to exercise discipline around both credit and pricing. Rockville maintains excellent asset quality and is top amongst its peer group by nearly every asset quality performance metric. The ratio of non-performing assets to total assets decreased to 0.66% over the year with net charge-offs being a nominal eight basis points for the year. The commercial banking team introduced a utilization of loan level hedging in 2013 recognizing 658,000 in fee income during the year under this program. This program will benefit the company propose an interest rate risk perspective going forward and in providing additional fee income opportunities in an extremely competitive market. We believe the loan level hedge program will continue to provide favorable results as the anticipated use of the program expands in 2014.

Thank you. And at this time, Marino will discuss the results of retail deposit and financial advisory initiatives.

Marino Santarelli - Chief Operating Officer

Thank you, Mark and good morning everyone. I would like to share with you this morning the continued success of our West Hartford Banking Center. After less than a year of operation, as of December 31, 2013, deposits at this location have grown to $104 million and are comprised of strong growth in both retail and commercial deposits. The balance was down slightly from the prior quarter due to seasonality of commercial deposits, but the trends remain very strong in this new market.

The new location was a key contributor to the company’s 15% deposit growth in 2013. We are also excited about the opening of our Hamden branch location last month. In addition to the retail deposit services, this branch includes representatives for investment advisory services, residential mortgage loan of origination and cash management products. We have received positive feedback thus far and this retail banking presence is supporting the Hamden Loan Production Office, which has been successfully operating since 2011. The upcoming opening of the company’s second New Haven County branch, the North Haven Banking Center is scheduled to open in the third quarter of this year, further complementing the company’s overall growth strategy and outstands along the one – I-91 corridor from New Haven to Glastonbury and Hartford.

I am pleased that investment advisory services are prominently pictured at both of these new locations and will enhance this already much expanded business line. After reorganizing the Rockville Financial Services advisory business in late 2012, the company has realized significant revenue increases over the past year. The company had added six very experienced investment advisors from local competitors to assist out our customers with their financial funding needs. And together, they have grown this business into $1 million annual revenue stream thus far. The fee income from this business line increased by 152% in 2013 up from $393,000 for the entire year of 2012. The company will continue to expand in this area as opportunities to recruit experienced advisors arise. We have to look forward to replicating the success in new markets after the merger with United.

Thank you for your time this morning. And now Bill, Eric, Mark, Brandon, Scott and I will be happy to answer any questions you have.

Question-and-Answer Session

Operator

Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions) The first question will come from Mark Fitzgibbon of Sandler O’Neill & Partners. Please go ahead.

Matt Ferguson - Sandler O’Neill & Partners

Hi, good morning. This is actually Matt, filling in for Mark, how are you?

Bill Crawford

Hi Matt.

Matt Ferguson - Sandler O’Neill & Partners

I had just a quick question here on the residential paper you are holding in portfolio, can you give us a sense of the typical loan term and call it duration, etcetera?

Bill Crawford

Sure. Brandon, how about you take that question?

Brandon Lorey

Yes, absolutely, good morning, Matt. Yes, so we are actually seeing a nice shift from fixed rate production into ARM, ARM production, yes, so what we have been telling on the portfolio has been we have seen a significant increase particularly in our 5.1 and 7.1 ARM production.

Matt Ferguson - Sandler O’Neill & Partners

Okay. And then you mentioned that you are seeing more compelling returns with your hold versus sell approach, I am just in a curiosity what kind of ROEs are you generating on this typical loan that you are holding in portfolio?

Bill Crawford

Matt, I don’t know that we want to put a number out there for you, but we look at it relative to the ROE that we are targeting and we are sensitive to that and we are really trying to look at both options and see which one makes the more sense. The other thing I would say though as Brandon mentioned in his comments, we are developing tools to help us become more effective in the sale of mortgage loans and we are in process in developing those tools. So once we get employee implemented, we will be in a position to be more effective in selling these loans in a more difficult market like the one we have been in.

Matt Ferguson - Sandler O’Neill & Partners

Okay. And then just at a higher level, could you give us a sense of your asset sensitivity positioning today and how the hold versus sell strategy kind of feeds into that?

Bill Crawford

Sure. I will let Eric take it, but I think the important thing is realized a magnitude of the loans we are putting on, it’s adding those 22 million grow, so it’s fairly de minimis relative to our balance sheet. But Eric, why don’t you take that one?

Eric Newell

Hey, Matt. At this point, we are fairly neutral when it comes to our modeling of interest rate risk on the balance sheet. That’s really driven by activities that we took in 2013 to bring on adjustable rate assets in the commercial portfolio and the investment portfolio. And we also have some tools on the – as a reminder, some tools on the liability side to help extend up the duration of the liability structure, but in future periods essentially that swap, we have also taken some advantage of some promotional pricing with customers and tried a few, have them go out on the curve a little more, but in terms of the hold strategy that you saw its employee in the fourth quarter with loans as Bill just mentioned it’s fairly de minimis. It had little impact just because with the primarily 5-year and 7-year adjustable rate the average lives of those are a little shorter than the reprice period. And we have the ability to easily find retail as well as wholesale funding to properly fund that and manage our current position at the top of the house.

Matt Ferguson - Sandler O’Neill & Partners

Thank you very much.

Operator

And our next question will come from Damon DelMonte of KBW. Please go ahead.

Damon DelMonte - KBW

Hey, good morning guys. How are you?

Bill Crawford

Hi, Damon.

Damon DelMonte - KBW

Bill, I guess my first question just in relation to your commercial loan growth outlook, obviously very strong fourth quarter, how do the pipelines look kind of going into year end and what should we expect as we head into 2014?

Bill Crawford

Thanks, Damon. Yes. Our commercial loan growth on the Rockville side has been in the mid-teens for a number of years and we anticipate that to continue. First quarter is always a little slower for us. But in terms of being able to – on the Rockville side generate the sort of commercial loan growth that we have in 2013, 2012. We fully expect that to continue.

Damon DelMonte - KBW

Okay. And we can probably expect a little bit more in the way of performing residential mortgages. So in the past, you had a runoff in residential mortgages, so the net growth was more in the high single-digit range, so can we expect overall kind of double-digit loan growth then?

Bill Crawford

Yes. Damon, you are going to see us be able to grow on balance sheet on the residential side. You are exactly right, our growth rate used to be like negative too, actually pretty much absolutely solved everything. But now we are doing as Brandon mentioned some of the ARMs, we are also seeing – we are jumbo product, which will go on balance sheet. So overall, at the top of the house, we expect our loan growth at the top of the house on the Rockville side to be significantly higher than it has in the past, because we are getting better traction out of consumer and we really haven’t seen the impact yet of what we are trying to do on the equity line of business. We have got some things. Brandon is working on there to accelerate loan growth.

Damon DelMonte - KBW

Okay, that’s helpful. Thank you. And then with regards to the mortgage banking revenue line, is it fair to assume that we see bit of a bounce back from this quarter – from the past quarter’s results?

Bill Crawford

How about this? Eric, you want to talk about sort of what our projection is there for Q1 and Q2.

Eric Newell

Yes. So part of the prospects in our secondary that’s given the fact that we weren’t selling much in the first quarter, it takes some time to kind of restart that process so to speak. And so given what we have been seeing for the last couple of weeks with spreads, actually spreads kind of coming in last week, but let’s say, spreads that we have seen in the months to-date so to speak kind of continue, I would expect that we would be able to kind of start that process up and a lot of that just comes down to we have locks that come in and generally there is a period of 60 days. So a lot of that revenue would actually be realized kind of closer to the end of the first quarter and into the second quarter. Just kind of longwinded way of saying that you are probably going to see a balance on the bottom of gain on sale like what we experienced in the fourth quarter, in the first quarter and then you will see an increase again in the second quarter.

Bill Crawford

David, one other thing I want to share, Brandon sort of talk about pipeline and what we look like there.

Brandon Lorey

Yeah absolutely. So, this is partially a result of our mortgage expansion along with just the folks that we’ve been putting on board with kind of that purchase focus and this the pipeline is as strong as I had seen it since I have been here which that include sometime during the refi market. So, we’re very happy to see the growth within the pipeline that we’ve experienced in the first quarter and in the purchase market it’s we’re feeling very strong about that.

Damon DelMonte - KBW

Okay.

Brandon Lorey

And just to add to that really the thing we’re able to do and I mentioned this in the comment is we’re adding these variable rate incentive-based loan officers we’re not adding anything to the back office and in fact over the last year we’ve reduced that total grew by 25% in total number. So, I think the combination there is a good story.

Damon DelMonte - KBW

Okay. That’s helpful. Thanks. And then I guess my last question probably for you Eric on the margin, if you guys are going to be portfolio-ing more residential mortgages, should we expect a little bit more compression I mean and if so to the extent that was this quarter or not so much?

Eric Newell

In terms of the addition of the adjustable rate mortgages that the yields that Brandon is putting on are getting ever still much closer to the portfolio yield. So, I would expect that - if we were to close that portion in the portfolio as it really took an earning assets level, the impact of what Brandon putting on the balance sheet would have less of an impact in 2014 than what it would have in 2013. As well as in the commercial side really it comes down to what type of loans markets putting on the books, there is LIBOR-based funding again that’s going to put a little more pressure versus some term real estate funding that isn’t swapped, that’s going to have actually it might even benefit us a little.

So, I would say that you’re probably going to see modest compression in the first - definitely in the first and second quarters. We obviously are very mindful of the funding side. You saw an increase in the cost of our interest-bearing liabilities and we’re going to take every step we can to ensure that, we don’t continue to be an upward bias on that, a lot of that comes down to competitive pricing to kind of combat some of the - just an alleviation that we saw out of the bank or into other price sensitive products just because equity markets were going gangbusters last year or people are being - have more confidence and want to buy homes, plots and cars. So we’ve been dealing with that, but then it also deals with some of the success of our producers to bring in low cost funding particularly on the commercial side. So, we feel pretty good about the ability to keep that funding measured and flat. And so I think a lot of its going to come back from that modest compression than it’s going to come in from the asset side.

Damon DelMonte - KBW

Okay, that’s great. Thank you very much guys.

Operator

(Operator Instructions) Our next question will come from Matthew Breese of Sterne Agee. Please go ahead.

Matthew Breese - Sterne Agee

Good morning everybody.

Bill Crawford

Hey, Matt.

Matthew Breese - Sterne Agee

I was hoping you could give us some color on the yields for commercial real estate asset this quarter?

Bill Crawford

Sure. Mark Kucia, you want to take that?

Mark Kucia

Sure. We are quoting of course in real time rates have come up pretty good from this time last year. We’re quoting deals over Federal Home Loan Bank advances. Now the full impact of that increase in rates which was probably I don’t know 70 Bps, 80 Bps probably 20 or 30 of that has been eaten up and kind of spread compression due to competitive portions. So we are seeing five year deals probably low fours, plus or minus. And looking at 10 year deals now, 5.25% upwards to close to 6% and then of course 7% would be somewhere in the middle.

Matthew Breese - Sterne Agee

And what about on regular way commercial loans, C&I loans?

Bill Crawford

C&I, bunch of that kind of the traditional C&I the lines etcetera are prime-based. So you would see anywhere from prime three quarters or 1.5. And the term there which of course are typically advertising very quickly over a 3.5 or 7 year period, those are spreads over the federal home loan bank advance rates.

Matthew Breese - Sterne Agee

Okay. And then maybe talk about overall loan yields for the quarter, what was the average yield this quarter on originated loans?

Bill Crawford

Eric, would you have that?

Eric Newell

On originated loans, I mean that obviously I am just looking at our disclosure on this. I would have to probably get back you on that, I don’t want to misquote and I don’t have that information right in front of me.

Matthew Breese - Sterne Agee

Bill maybe could you talk about the new Senior Vice President of Virtual Banking and what does this mean over the long-term and are there any necessary investments that need to be made to your web-based platform as a result?

Bill Crawford

Yes, thanks Matt. I think if you look at how customers’ lives are changing via the iPad, iPhone, Android, etcetera. You look at the adoption rate of mobile, for example, Brian Moynihan of Bank of America talked about that hire is really – I mean, we have basic technology that we get through our current provider and it’s pretty good, but that hire is more about us becoming opportunistic with this and making sure that we over the next three to five years we are able to really develop this best-in-class in terms of the customer experience around an online strategy, mobile strategy, but there is not any massive technology spend we have out there. It’s just more about working with our vendors and how we do our marketing and become more effective because I believe that is going to be a significant growth channel for us. And my view is if you are not really good at virtual your risk becoming irrelevant to your customers, so that’s what, what we are doing there.

Matthew Breese - Sterne Agee

I agree and there are no major investments though to speak of it?

Bill Crawford

No, no, there is nothing out there that’s a big game changer. We are always investing in technology, but its incremental type of stuff.

Matthew Breese - Sterne Agee

Okay. And then what’s the good tax rate to use going forward?

Bill Crawford

Eric, I will let you take that one.

Eric Newell

Given the merger the effective tax rate is going to be pretty distorted. So I would – our effective tax rate for 2013, I believe was 27%, 28%, so my bias for 2014 would be much close to our statutory rate and maybe even higher than that. So statutory is 35%. But I mean, Matt, there is a lot of stuff that’s going to come down if we get the approval then we close the deal. There is a lot of items that are not tax deductable and a lot of the impact with the increasing our effective tax rate.

Matthew Breese - Sterne Agee

Got it, okay. Thank you.

Operator

And ladies and gentlemen, that will conclude our question-and-answer session. I would like to turn the conference back over to Mr. Bill Crawford for his closing remarks.

Bill Crawford - President and Chief Executive Officer

Okay. Well, thanks again for your interest in our company. We remain very bullish on our outlook for 2014. We are very excited about what we are working on with United Financial to become a more efficient company into the future. But as always if you have questions, feel free to give us a call and hope everybody has a terrific day. Thanks.

Operator

Ladies and gentlemen, the conference has now concluded. We thank you for attending today’s presentation. You may now disconnect your lines. And ladies and gentlemen, once again the conference has now concluded. You may now disconnect.

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Source: Rockville Financial's CEO Discusses Q4 2013 Results - Earnings Call Transcript
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