NewAlliance Bancshares, Inc. (NAL)

Q2 2010 Earnings Conference Call

July 28, 2010 9:00 am ET


Jude Falango - VP, IR

Peyton R. Paterson - Chairman, President & CEO

Glenn MacInnes - EVP & CFO

Don Chaffee - CCO


Frank Schiraldi - Sandler O'Neill & Partners LP

Amanda Larson - Raymond James Financial Inc.

Jason O'Donnell - Boenning & Scattergood Inc.

Christopher Nolan - Maxim Group LLC

Collyn Gilbert - Stifel Nicolaus & Co.

Gerard Cassidy - RBC Capital Markets Corp



Good morning, and welcome to the NewAlliance Bancshares second quarter 2010 earnings conference call. All participants are in a 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 Jude Falango, Vice President of Investor Relations. Please go ahead.

Jud e Falango

Good morning. I'd like to remind you to read the Safe Harbor advisement on forward-looking statements on slide two of the earnings call presentation that could be found in the Investor Relations area of our website. Our comments today are intended to qualify for the Safe Harbor afforded by that advisement.

Now I'd like to introduce Peyton R. Paterson, Chairman, President and CEO.

Peyton R. Paterson

Good morning, and thank you for joining NewAlliance's second quarter earnings call. Joining me today are Glenn MacInnes, our Chief Financial Officer; and Don Chaffee, our Chief Credit Officer. We will be happy to take your questions at the end of our remarks.

First I'll provide an overview of the quarter; Glenn will then take you through the details, then I will come back to speak with you about the economic environment as well as our outlook going forward.

I'm very pleased to report that our second quarter results not only continue the positive trend you have seen, but actually improved upon them. We are delivering a value preposition that is very attractive to both consumers and businesses and our strategic investments in commercial banking and brand building are paying off in terms of deposits, loans and revenue growth.

Now let's turn our attention to slide three with the review of our 2010 priorities and our progress against these milestones. Increasing and sustaining revenue momentum has been a top priority. As this remains the challenge for many of our peers. We are pleased to report another quarter of record revenue growth. Loan originations also hit a record for the second quarter, supported by strong commercial and consumer volume.

For nine consecutive quarters we have grown deposits, and this year our growth has been enhanced by our new branding campaign, and intense focus on primary checking household growth. We continue to improve our efficiency growing revenues at a more rapid pace then expenses. And lastly, we are active in the market looking for ways to expand our footprint, the accretive M&A transaction as well as new branch location.

Turning to slide four, let's look at our results on a linked quarter basis. Net income exceeded $16 million for the second consecutive quarter, up 5.5% on an adjusted basis. Revenues improved by 3.6% with an increase in both net interest income and non-interest income.

As we committed at the beginning of the year, we grew the net interest margin above 3% during the quarter to 3.02%. But important to note, the margin was up five basis points from the prior quarter. Non-interest income growth was helped by the 11.2% increase in the positive service charge income. The result of strong transaction related volumes and the expansion of our checking account phase. Merchant services income also showed a nice increase of 16.5% on a linked quarter basis, reflecting our success in signing up new merchants as well as continued positive trends around the adoption of electronic payment over paper check.

Turning to the balance sheet. We continue to grow deposits both on the commercial and retail front. For the quarter, deposits grew 1.6%. Of special note, our new marketing and branding campaign as well as our outstanding branch employees have allowed us to attract this increasing number of new and consumer and commercial accounts. For example, on a linked quarter basis non-interest bearing DDA balance were up an impressive 6.5%.

We are also very pleased that we posted record loan originations of $535 million in the second quarter. This is an increase of 37% over the linked quarter. The increase came from both commercial and residential loans with the largest segment increase was from our newly formed asset base lending business. This is a second consecutive quarter that we are also reporting loan portfolio growth. A 2.8% increase over last quarter and a 3.5 increase year-to-date. And we expect that trend to continue.

We are very encouraged by the strong loan volume that we have been able to generate in all of our markets. The investments we made in our business last year both in management additions and in launching our new brand positioning have allowed us to outperform our competitors.

Looking to slide five, year-on-year net income jumped 61%, with our revenues up 12.9% as our net interest margin increased 39 basis points. We also have been able to expand our balance sheet in both quarters of 2010. Year-over-year core deposits are up over 10%. Record loan originations were 33% better than a year ago and resulted in our total loan portfolio growth of 1.6%. Importantly our commercial loan portfolio is up over 6%.

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