NewAlliance Beats on Revenues – Analyst Blog

NewAlliance Bancshares Inc.’s (NAL) first-quarter earnings came in at 14 cents per share, two pennies ahead of the Zacks Consensus Estimate of 12 cents. This also compares favorably with earnings of 12 cents in the year-ago quarter.

 

Earnings for the reported quarter exclude the gain from tax-exempt life insurance proceeds of 3 cents per share. The upside was primarily due to an extraordinary revenue impetus, a strong growth in core deposits, robust loan originations and improved net interest margin (NIM). Also, NewAlliance continued to maintain a strong capital position during the reported quarter. However, higher provision for loan losses and increased non-interest expense compared to the year-ago quarter were the downside.

 

 

Net income for the quarter was $16.4 million, up 41.8% from $11.6 million in the prior-year quarter. Excluding a gain related to the receipt of tax-exempt life insurance proceeds of $2.6 million, net income was $13.8 million for the reported quarter. Revenue for the reported quarter increased 14.1% year-over-year to $71.0 million.

 

NewAlliance’s net interest income for the quarter increased 4.0% sequentially and 15.9% year-over-year to $55.6 million. NIM for the quarter improved 15 basis points (bps) sequentially and 39 bps year-over-year to 2.97%. The increase in net interest income and net interest margin is directly related to the reduction in costs associated with borrowings and deposits. The cost of deposits decreased 29 bps sequentially and 91 bps year-over-year.

 

Non-interest income increased 16.3% sequentially and 8.0% year-over-year to $15.4 million. NewAlliance recorded a $2.6 million gain from tax-exempt life insurance proceeds in the reported quarter. Non-interest expenses for the reported quarter decreased 6.6% sequentially but increased 4.5% year-over-year to $42.2 million.

 

 

As on March 31, 2010, NewAlliance remained well capitalized with a Tier 1 leverage capital ratio of 11.34%, compared to 11.05% as on December 31, 2009 and 11.02% as on March 31, 2009.

 

 

The overall credit quality of NewAlliance deteriorated during the quarter. Net charge-offs were up 3 bps sequentially but down 1 basis point year-over-year to 0.26% of average loans. Non-performing assets increased 16 bps sequentially and 19 bps year-over-year to 0.80% of total assets. The allowance for loan losses increased 3 bps sequentially and 10 bps year-over-year to 1.13% of total loans. The provision for loan losses decreased 38.4% sequentially and 17.1% year-over-year to $4.8 million.

 

 

NewAlliance’s profitability ratio was impressive during the quarter. Return on equity (ROE) improved 122 bps year-over-year to 4.57% and return on assets (ROA) improved 23 bps year-over-year to 0.78%.

 

Book value came in at $13.61 per share as of March 31, 2010, compared to $13.53 as of December 31, 2009 and $13.06 as of March 31, 2009. Tangible book value came in at $8.32 per share as of March 31, 2010, compared to $8.23 as of December 31, 2009 and $7.73 as of March 31, 2009.

 

Dividend Update 

 

Concurrent with the earnings release, the board of directors of NewAlliance announced a quarterly dividend of 7 cents per share. The dividend will be paid on May 20, 2010, to shareholders of record as on May 10, 2010. During the first quarter of 2008, the company increased its quarterly dividend by 7.7% to the current level.

 

While NewAlliance is expected to benefit from its strong capital position and growth in core deposits relative to its peers, increasing credit costs will keep earnings under pressure.