NewAlliance Bancshares Inc.’s (NAL) fourth-quarter earnings came in at 12 cents per share, in line with the Zacks Consensus Estimate. This compares favorably with earnings of 10 cents in the year-ago quarter.
 
The upside was primarily due to a strong growth in core deposits, record organic residential mortgage originations and improved net interest margin (NIM). Also, NewAlliance continued to maintain a strong capital position during the reported quarter.
 
Net income for the quarter was $12.1 million, up 25.7% from $9.6 million in the prior-year quarter. Revenue for the reported quarter increased 11.1% year-over-year to $66.8 million.
 
For full year 2009, NewAlliance’s net income came in at $46.4 million or 47 cents per share, compared to $45.3 million or 45 cents in the previous year. Revenues for the year increased 6.7% over 2008 to $262.5 million.
 
NewAlliance’s net interest income for the quarter increased 3.4% sequentially and 12.0% year-over-year to $53.5 million. NIM for the quarter improved 11 basis points (bps) sequentially and 23 bps year-over-year to 2.82%. The increase in net interest income and net interest margin is directly related to the reduction in costs associated with borrowings and deposits. The weighted average cost of deposits decreased 92 bps year-over-year to 1.32%.
 
Non-interest income decreased 19.5% sequentially but increased 7.6% year-over-year to $13.2 million. The year-over-year increase was due primarily to depositor service charges. In addition, trust fee income for the reported quarter increased 14.9% year-over-year to $1.6 million. Non-interest expenses for the reported quarter increased 7.0% sequentially and 8.5% year-over-year to $45.2 million.
 
As on December 31, 2009, NewAlliance remained well capitalized with a Tier 1 leverage ratio of 11.05% compared to 10.97% as on September 30, 2009, and 11.05% as on December 31, 2008.
 
The overall credit quality of NewAlliance was mixed during the quarter. Net charge-offs were down 20 bps sequentially and 2 bps year-over-year to 0.23% of average loans. However, non-performing assets increased 3 bps sequentially and 15 bps year-over-year to 0.64% of total assets. The allowance for loan losses increased 2 bps sequentially and 9 bps year-over-year to 1.10% of total loans. The provision for loan losses decreased 36.2% sequentially and 8.8% year-over-year to $3.5 million.
 
NewAlliance’s profitability ratios were impressive during the quarter. Return on equity (ROE) improved 63 bps year-over-year to 3.39% and return on assets (ROA) improved 10 bps year-over-year to 0.57%.
 
Book value came in at $13.53 per share as of December 31, 2009, compared to $13.39 as of September 30, 2009, and $12.90 as of December 31, 2008. Tangible book value came in at $8.23 per share as of December 31, 2009, compared to $8.09 as of September 30, 2009 and $7.57 as of December 31, 2008.
 
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 February 18, 2010, to shareholders of record on February 8, 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 credit quality relative to its peers, increasing credit costs will keep earnings under pressure.
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