UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2008.
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ____________ to __________.
Commission File Number: 001-32007
NEWALLIANCE BANCSHARES, INC. |
(Exact name of registrant as specified in its charter) |
DELAWARE | 52-2407114 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
195 Church Street, New Haven, Connecticut | 06510 | |
(Address of principal executive offices) | (Zip Code) |
Large accelerated filer X | Accelerated filer ___ | |
Non-accelerated filer ___ | Smaller reporting company ___ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). | [ ] Yes | [ X ] No |
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.
Common Stock (par value $.01) | 108,590,368 | ||||
Class | Outstanding at May 5, 2008 |
TABLE OF CONTENTS
Item 1. | Financial Statements (Unaudited) | |||||
Consolidated Balance Sheets at March 31, 2008 and December 31, 2007 | 3 | |||||
Consolidated Statements of Income for the three months ended March 31, 2008 and 2007 | 4 | |||||
Consolidated Statement of Changes in Stockholders Equity for the three months ended March 31, 2008 | 5 | |||||
Consolidated Statements of Cash Flows for the three months ended March 31, 2008 and 2007 | 6 | |||||
Notes to Unaudited Consolidated Financial Statements | 7 | |||||
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations | 20 | ||||
Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 35 | ||||
Item 4. | Controls and Procedures | 35 | ||||
Item 4T. | Controls and Procedures | 36 | ||||
Part II OTHER INFORMATION | ||||||
Item 1. | Legal Proceedings | 36 | ||||
Item 1A. | Risk Factors | 36 | ||||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 39 | ||||
Item 3. | Defaults Upon Senior Securities | 39 | ||||
Item 4. | Submission of Matters to a Vote of Security Holders | 39 | ||||
Item 5. | Other Information | 40 | ||||
Item 6. | Exhibits | 40 | ||||
2
March 31, | December 31, | |||||||
(In thousands, except per share data) (Unaudited) | 2008 | 2007 | ||||||
Assets | ||||||||
Cash and due from banks, noninterest bearing |
$ | 121,246 | $ | 108,917 | ||||
Short-term investments |
25,000 | 51,962 | ||||||
Cash and cash equivalents |
146,246 | 160,879 | ||||||
Investment securities available for sale (note 5) |
2,109,367 | 2,201,021 | ||||||
Investment securities held to maturity (note 5) |
334,583 | 290,472 | ||||||
Loans held for sale |
7,268 | 2,669 | ||||||
Loans, net (note 6) |
4,713,540 | 4,684,156 | ||||||
Premises and equipment, net |
61,530 | 61,939 | ||||||
Cash surrender value of bank owned life insurance |
133,588 | 132,059 | ||||||
Goodwill (note 7) |
528,117 | 531,191 | ||||||
Identifiable intangible assets (note 7) |
50,952 | 53,316 | ||||||
Other assets (note 8) |
96,818 | 93,282 | ||||||
Total assets |
$ | 8,182,009 | $ | 8,210,984 | ||||
Liabilities | ||||||||
Deposits (note 9) |
||||||||
Non-interest bearing |
$ | 484,380 | $ | 477,408 | ||||
Savings, interest-bearing checking and money market |
2,027,301 | 1,834,190 | ||||||
Time |
1,745,933 | 2,062,067 | ||||||
Total deposits |
4,257,614 | 4,373,665 | ||||||
Borrowings (note 10) |
2,424,860 | 2,355,504 | ||||||
Other liabilities |
84,686 | 74,708 | ||||||
Total liabilities |
6,767,160 | 6,803,877 | ||||||
Commitments and contingencies (note 14) |
||||||||
Stockholders Equity | ||||||||
Preferred stock,$0.01 par value; authorized 38,000 shares; none issued |
- | - | ||||||
Common stock, $0.01 par value; authorized 190,000 shares; issued 121,486 shares at March 31, 2008 and December 31, 2007 |
1,215 | 1,215 | ||||||
Additional paid-in capital |
1,243,213 | 1,242,100 | ||||||
Unallocated common stock held by ESOP |
(95,124 | ) | (96,039 | ) | ||||
Unearned restricted stock compensation |
(23,544 | ) | (25,466 | ) | ||||
Treasury stock, at cost (12,896 shares at March 31, 2008 and 12,634 shares at December 31, 2007) |
(181,389 | ) | (178,401 | ) | ||||
Retained earnings |
456,958 | 451,729 | ||||||
Accumulated other comprehensive income (note 16) |
13,520 | 11,969 | ||||||
Total stockholders equity |
1,414,849 | 1,407,107 | ||||||
Total liabilities and stockholders equity |
$ | 8,182,009 | $ | 8,210,984 | ||||
See accompanying notes to consolidated financial statements.
3
Three Months Ended | ||||||||
March 31, | ||||||||
(In thousands, except share data) (Unaudited) | 2008 | 2007 | ||||||
Interest and dividend income | ||||||||
Residential real estate loans |
$ | 33,278 | $ | 29,820 | ||||
Commercial real estate loans |
18,887 | 18,372 | ||||||
Commercial business loans |
7,365 | 8,118 | ||||||
Consumer loans |
10,287 | 10,754 | ||||||
Investment securities |
32,113 | 28,865 | ||||||
Short-term investments |
284 | 877 | ||||||
Total interest and dividend income |
102,214 | 96,806 | ||||||
Interest expense | ||||||||
Deposits |
29,998 | 32,021 | ||||||
Borrowings |
26,210 | 21,380 | ||||||
Total interest expense |
56,208 | 53,401 | ||||||
Net interest income before provision for loan losses |
46,006 | 43,405 | ||||||
Provision for loan losses | 1,700 | 1,000 | ||||||
Net interest income after provision for loan losses |
44,306 | 42,405 | ||||||
Non-interest income | ||||||||
Depositor service charges |
6,632 | 6,489 | ||||||
Loan and servicing income |
381 | 446 | ||||||
Trust fees |
1,670 | 1,667 | ||||||
Investment management, brokerage & insurance fees |
2,532 | 1,674 | ||||||
Bank owned life insurance |
1,529 | 1,570 | ||||||
Net gain on securities |
1,138 | 158 | ||||||
Net gain on sale of loans |
257 | 197 | ||||||
Other |
1,527 | 2,028 | ||||||
Total non-interest income |
15,666 | 14,229 | ||||||
Non-interest expense | ||||||||
Salaries and employee benefits (notes 11 & 12) |
23,689 | 21,857 | ||||||
Occupancy |
4,895 | 4,404 | ||||||
Furniture and fixtures |
1,686 | 1,741 | ||||||
Outside services |
4,273 | 4,578 | ||||||
Advertising, public relations, and sponsorships |
1,709 | 1,679 | ||||||
Amortization of identifiable intangible assets |
2,364 | 3,088 | ||||||
Merger related charges |
56 | 1,867 | ||||||
Other |
3,565 | 3,555 | ||||||
Total non-interest expense |
42,237 | 42,769 | ||||||
Income before income taxes |
17,735 | 13,865 | ||||||
Income tax provision (note 13) |
4,801 | 4,569 | ||||||
Net income |
$ | 12,934 | $ | 9,296 | ||||
Basic earnings per share (note 17) | $ | 0.13 | $ | 0.09 | ||||
Diluted earnings per share (note 17) | 0.13 | 0.09 | ||||||
Weighted-average shares outstanding (note 17) | ||||||||
Basic |
100,277,267 | 104,196,785 | ||||||
Diluted |
100,330,148 | 104,699,748 | ||||||
Dividends per share | $ | 0.065 | $ | 0.060 | ||||
See accompanying notes to consolidated financial statements.
4
Unallocated | Accumulated | ||||||||||||||||||||||||||||||||
Common | Par Value | Additional | Common | Other | Total | ||||||||||||||||||||||||||||
For the Three Months Ended March 31, 2008 | Shares | Common | Paid-in | Stock Held | Unearned | Treasury | Retained | Comprehensive | Stockholders | ||||||||||||||||||||||||
(In thousands, except per share data) (unaudited) | Outstanding | Stock | Capital | by ESOP | Compensation | Stock | Earnings | Income | Equity | ||||||||||||||||||||||||
Balance December 31, 2007 | 108,852 | $ | 1,215 | $ | 1,242,100 | $ | (96,039 | ) | $ | (25,466 | ) | $ | (178,401 | ) | $ | 451,729 | $ | 11,969 | $ | 1,407,107 | |||||||||||||
Dividends declared ($0.065 per share) | (6,643 | ) | (6,643 | ) | |||||||||||||||||||||||||||||
Allocation of ESOP shares, net of tax | (119 | ) | 915 | 796 | |||||||||||||||||||||||||||||
Treasury shares acquired (note 15) | (262 | ) | (2,988 | ) | (2,988 | ) | |||||||||||||||||||||||||||
Restricted stock expense | 1,922 | 1,922 | |||||||||||||||||||||||||||||||
Excess tax benefit of stock-based compensation | 107 | 107 | |||||||||||||||||||||||||||||||
Stock option expense | 1,125 | 1,125 | |||||||||||||||||||||||||||||||
Adoption of EITF 06-4, net of tax (Note 2) | (1,062 | ) | (1,062 | ) | |||||||||||||||||||||||||||||
Comprehensive income: | |||||||||||||||||||||||||||||||||
Net income |
12,934 | 12,934 | |||||||||||||||||||||||||||||||
Other comprehensive income, net of tax (note 16) |
1,551 | 1,551 | |||||||||||||||||||||||||||||||
Total comprehensive income |
14,485 | ||||||||||||||||||||||||||||||||
Balance March 31, 2008 | 108,590 | $ | 1,215 | $ | 1,243,213 | $ | (95,124 | ) | $ | (23,544 | ) | $ | (181,389 | ) | $ | 456,958 | $ | 13,520 | $ | 1,414,849 | |||||||||||||
See accompanying notes to consolidated financial statements.
5
Three Months Ended | |||||||||
March 31, | |||||||||
(In thousands) (Unaudited) | 2008 | 2007 | |||||||
Cash flows from operating activities | |||||||||
Net income | $ | 12,934 | $ | 9,296 | |||||
Adjustments to reconcile net income to net cash provided by operating activities |
|||||||||
Provision for loan losses |
1,700 | 1,000 | |||||||
Gain on sale of OREO |
(68 | ) | - | ||||||
Restricted stock compensation expense |
1,922 | 1,721 | |||||||
Stock option compensation expense |
1,125 | 1,096 | |||||||
ESOP expense |
796 | 973 | |||||||
Amortization of identifiable intangible assets |
2,364 | 3,088 | |||||||
Net amortization/accretion of fair market adjustments from net assets acquired |
(1,289 | ) | (1,922 | ) | |||||
Net amortization/accretion of investment securities |
(839 | ) | 3 | ||||||
Change in deferred income taxes |
2,057 | 3,240 | |||||||
Depreciation and amortization |
1,772 | 1,769 | |||||||
Net gain on securities |
(1,138 | ) | (158 | ) | |||||
Net gain on sales of performing loans |
(257 | ) | (197 | ) | |||||
Proceeds from sales of loans held for sale |
21,709 | 6,622 | |||||||
Loans originated for sale |
(26,151 | ) | (13,630 | ) | |||||
Gain on sale of fixed assets |
(4 | ) | - | ||||||
Loss (gain) on limited partnerships |
209 | (669 | ) | ||||||
Increase in cash surrender value of bank owned life insurance |
(1,529 | ) | (1,570 | ) | |||||
(Increase) decrease in other assets |
(6,300 | ) | 75,281 | ||||||
Increase (decrease) in other liabilities |
11,422 | (15,119 | ) | ||||||
Net cash provided by operating activities |
20,435 | 70,824 | |||||||
Cash flows from investing activities | |||||||||
Purchase of securities available for sale |
(121,532 | ) | (14,110 | ) | |||||
Purchase of securities held to maturity |
(58,995 | ) | - | ||||||
Proceeds from maturity, sales, calls and principal reductions of securities available for sale |
217,272 | 112,120 | |||||||
Proceeds from maturity, calls and principal reductions of securities held to maturity |
15,124 | 13,863 | |||||||
Net increase in loans held for investment |
(30,924 | ) | (226,611 | ) | |||||
Net cash acquired in acquisitions |
- | 124,163 | |||||||
Proceeds from sales of other real estate owned |
517 | - | |||||||
Purchase of premises and equipment |
(1,342 | ) | (2,600 | ) | |||||
Net cash provided by investing activities |
20,120 | 6,825 | |||||||
Cash flows from financing activities | |||||||||
Net decrease in customer deposit balances |
(116,044 | ) | (88,457 | ) | |||||
Net increase in short-term borrowings |
35,368 | 3,120 | |||||||
Proceeds from long-term borrowings |
198,000 | 291,000 | |||||||
Repayments of long-term borrowings |
(162,988 | ) | (209,871 | ) | |||||
Shares issued for stock option exercise |
- | 10 | |||||||
Excess tax benefit of stock-based compensation |
107 | 93 | |||||||
Acquisition of treasury shares |
(2,988 | ) | (1,838 | ) | |||||
Dividends declared |
(6,643 | ) | (6,400 | ) | |||||
Net cash used by financing activities |
(55,188 | ) | (12,343 | ) | |||||
Net (decrease) increase in cash and cash equivalents |
(14,633 | ) | 65,306 | ||||||
Cash and equivalents, beginning of period |
160,879 | 156,025 | |||||||
Cash and equivalents, end of period |
$ | 146,246 | $ | 221,331 | |||||
Supplemental information | |||||||||
Cash paid for |
|||||||||
Interest on deposits and borrowings |
57,460 | 52,309 | |||||||
Income taxes (refunded) paid, net |
(1,590 | ) | 528 | ||||||
Noncash transactions |
|||||||||
Net non-cash liabilities acquired |
- | (145,927 | ) | ||||||
Value of shares issued for acquisitions |
- | 58,939 |
See accompanying notes to consolidated financial statements.
6
1. | Summary of Significant Accounting Policies | |
Financial Statement Presentation | ||
The consolidated
financial statements of NewAlliance Bancshares, Inc. (the Company) have
been prepared in conformity with accounting principles generally accepted in the
United States of America. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. All significant intercompany transactions and balances have been
eliminated in consolidation. Amounts in prior period financial statements are reclassified
whenever necessary to conform to the current year presentation. These Consolidated
Financial Statements should be read in conjunction with the audited Consolidated
Financial Statements and Notes thereto included in the Companys Annual Report
on Form 10-K as of and for the year ended December 31, 2007. |
||
The preparation
of the consolidated financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues and
expenses and the disclosure of contingent assets and liabilities. Actual results
could differ from those estimates. |
||
Material estimates
that are particularly susceptible to significant near-term change relate to the
determination of the allowance for loan losses, the obligation and expense for pension
and other postretirement benefits, estimates used to evaluate asset impairment including
income tax contingencies and deferred tax assets and liabilities, stock-based compensation
and the recoverability of goodwill and other intangible assets. |
||
2. | Recent Accounting Pronouncements | |
In March
2008, the Financial Accounting Standards Board (FASB) issued Statement
No. 161 (SFAS No. 161), Disclosures about Derivative Instruments
and Hedging Activities. SFAS No. 161 requires enhanced disclosures regarding
derivative instruments and hedging activities that include a tabular summary of
the fair values of derivative instruments and their gains and losses, disclosure
of derivative features that are credit-risk-related to provide more information
regarding an entitys liquidity and cross-referencing within footnotes to make
it easier for financial statement users to locate important information about derivative
instruments. The new standard is effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008, with early application
encouraged. Management believes that the adoption of SFAS No. 161 will not have
a material impact on the Companys consolidated financial statements. |
||
In December
2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS No. 141(R)) which replaces SFAS No. 141, Business
Combinations. SFAS No. 141(R) retains the fundamental requirements in
SFAS No. 141 that the acquisition method of accounting be used for all business
combinations and for an acquirer to be identified for each business combination.
SFAS No. 141(R) requires among other things, that acquisition-related transaction
and restructuring costs be expensed rather than treated as part of the cost of the
acquisition; that the acquiring entity in a business combination to recognize all
the assets acquired and liabilities assumed in the transaction; that the acquisition-date
fair value be used as the measurement objective for all assets acquired and liabilities
assumed; and that the acquirer provide certain disclosures that will allow users
of the financial statements to understand the nature and financial effect of the
business combination. SFAS No. 141(R) is effective for fiscal years beginning after
December 15, 2008. Management is currently analyzing the impact of this pronouncement
on the financial statements. The adoption of SFAS No. 141(R) would apply prospectively
to any future business combinations. It is expected to have a significant effect
on NewAlliances consolidated financial statements, and therefore the impact
would be determined when a business combination occurs. |
||
In February
2007, the FASB issued SFAS No. 159,The Fair Value Option for Financial
Assets and Financial Liabilities, to permit all entities to choose to
elect to measure eligible financial instruments at fair value. A business entity
shall report in earnings, unrealized gains and losses on items for which the fair
value option has been elected. Eligible items include any recognized financial assets
and liabilities with certain exceptions including but not limited to, deposit liabilities,
investments in subsidiaries, and certain deferred compensation arrangements. The
decision about whether to elect the fair value option is generally applied on an
instrument-by-instrument basis, is generally irrevocable, and is applied only to
an entire instrument and not to only specified risks, specific cash flows, or portions
of that instrument. This Statement was effective as of the beginning of each reporting
entitys first fiscal year that begins after November 15, 2007. Management
did not elect the fair value option for any of the Companys eligible financial
assets or liabilities on January 1, 2008. |
||
In September
2006, the FASB issued SFAS No. 158, Employers Accounting for Defined
Benefit Pension and Other Postretirement Plans an amendment of
SFAS Nos. 87, 88, 106, and 132(R), that requires employers to recognize the overfunded
or underfunded positions of defined benefit postretirement plans, including pension
plans, in their balance sheets for fiscal years ending after December 15, 2006.
The Standard also requires that employers measure plan assets and obligations as
of the date of their financial statements. This Statement requires a public entity
that currently measures plan assets and benefit |
7
obligations
as of a date other than the date of its statement of financial position to implement
the change in measurement date for fiscal years ending after December 15, 2008.
Amounts recognized pursuant to SFAS No. 158 will not affect the Banks regulatory
capital. The impact of adopting SFAS No. 158 on December 31, 2006, was a reduction
to stockholders equity of $5.8 million, net of tax, with no impact to the
consolidated statements of income and cash flows. The adoption of the measurement
date provision on December 31, 2008 will not have a material impact on the Companys consolidated financial statements. |
||
In September
2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS No. 157), which addresses how companies should measure fair value
when they are required to use a fair value measure for recognition or disclosure
purposes under generally accepted accounting principles (GAAP). As a
result of SFAS No. 157, there is now a common definition of fair value to be used
throughout GAAP as it establishes a fair value hierarchy. SFAS No. 157 will require
companies to make expanded disclosures about fair value measurements. The Company
adopted SFAS No. 157 effective January 1, 2008. The adoption of SFAS No. 157 did
not have a material impact on the Companys consolidated financial statements.
See Note 3 in Notes to Unaudited Consolidated Financial Statements for additional
information. |
||
In February
2008, the FASB issued FASB Staff Position FAS No. 157-2,Effective Date
of FASB Statement No. 157 (FSP No. 157-2), which delays the
January 1, 2008 effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial
liabilities, to fiscal years beginning after November 15, 2008, and interim periods
within those fiscal years. The adoption of FSP No. 157-2 is not expected to have
a material effect on the Companys consolidated financial statements. |
||
In September
2006, the FASB reached a consensus on Emerging Issues Task Force (EITF)
Issue 06-4,Accounting for Deferred Compensation and Postretirement Benefit
Aspects of Endorsement Split-Dollar Life Insurance Arrangements, (EITF
Issue 06-4). In March 2007, the FASB reached a consensus on EITF Issue 06-10,
Accounting for Collateral Assignment Split-Dollar Life Insurance Arrangements, (EITF Issue 06-10). Both of these standards require a company
to recognize an obligation over an employees service period based upon the
substantive agreement with an employee such as the promise to maintain a life insurance
policy or provide a death benefit. The Company adopted the provisions of these standards
effective January 1, 2008 which resulted in the recording of a liability of $1.6
million with a corresponding reduction to retained earnings, (net of tax). |
||
3. | Fair Value Measurements | |
SFAS No. 157,
Fair Value Measurements, defines fair value, establishes a framework for measuring
fair value under GAAP, and expands disclosures about fair value measurements. As
a result of SFAS No. 157, there is now a common definition of fair value to be used
throughout GAAP, it establishes a fair value hierarchy and will require companies
to make expanded disclosures about fair value measurements. The three levels of
the fair value hierarchy under SFAS No. 157 are described below: |
||
| Level 1 Quoted prices in active markets for identical assets or liabilities. | ||
| Level 2 Observable inputs other than Level 1 prices such as quoted prices for similar
assets or liabilities; quoted prices in markets that are not active; or other inputs
that are observable or can be corroborated by observable market data for substantially
the full term of the assets or liabilities. This category generally includes U.S. Government and agency mortgage backed securities; corporate debt securities, derivative
contracts and residential mortgage loans held-for-sale. |
||
| Level 3 Unobservable inputs that are supported by little or no market activity
and that are significant to the fair value of the assets or liabilities. Level 3
assets and liabilities include financial instruments whose value is determined using
pricing models, discounted cash flow methodologies, or similar techniques, as well
as instruments for which the determination of fair value requires significant management
judgment or estimation. |
The following
table details the financial instruments carried at fair value on a recurring basis
as of March 31, 2008 and indicates the fair value hierarchy of the valuation techniques
utilized by the Company to determine the fair value: |
March 31, 2008 | |||||||||||||||
Quoted Prices in | Significant | ||||||||||||||
Active Markets for | Significant | Unobservable | |||||||||||||
Identical Assets | Observable Inputs | Inputs | |||||||||||||
(In thousands) | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Securities Available for Sale | $ | 210,837 | $ | 1,782,244 | $ | - | |||||||||
8
Where quoted
prices are available in an active market, securities are classified within level
1 of the valuation hierarchy. Level 1 securities include highly liquid government
bonds, certain mortgage products and exchange-traded equities. If quoted prices
are not available, then fair values are estimated by using pricing models or quoted
prices of securities with similar characteristics. The Company utilizes a 3
rd party to obtain pricing for its securities portfolio. Examples of such instruments,
which would generally be classified within Level 2 of the valuation hierarchy, include
mortgage-backed securities and municipal obligations. |
||
The following
table details the financial instruments carried at fair value on a nonrecurring
basis as of March 31, 2008 and indicates the fair value hierarchy of the valuation
techniques utilized by the Company to determine the fair value: |
March 31, 2008 | |||||||||||||||||
Quoted Prices in | Significant | ||||||||||||||||
Active Markets for | Significant | Unobservable | |||||||||||||||
Identical Assets | Observable Inputs | Inputs | |||||||||||||||
(In thousands) | (Level 1) | (Level 2) | (Level 3) | ||||||||||||||
Loan Servicing Rights | $ | - | $ | - | $ | 3,589 | |||||||||||
Impaired Loans | - | - | 2,651 | ||||||||||||||
The following
is a description of the valuation methodologies used for instruments measured at
fair value. |
||
Loan
Servicing Rights: A Loan Servicing Right asset represents the amount by which
the present value of the estimated future net cash flows to be received from servicing
loans are expected to more than adequately compensate the Company for performing
the servicing. The fair value of servicing rights is estimated using a present value
cash flow model. The most important assumptions used in the valuation model are
the anticipated rate of the loan prepayments and discount rates. Although some assumptions
in determining fair value are based on standards used by market participants, some
are based on unobservable inputs and therefore are classified in Level 3 of the
valuation hierarchy. |
||
Impaired
loans: Impaired loans for which the Bank expects to receive less than the contracted
balance are written down to fair value. These loans are written down through a specific
reserve within the Banks total loan loss reserve allowance. The fair value
of these assets are classified within Level 3 of the valuation hierarchy and are
estimated based on either collateral values supported by appraisals, or observed
market prices. |
||
4. | Business Combinations | |
There were
no business combinations completed for the quarter ended March 31, 2008. The following
table summarizes acquisitions completed since January 1, 2007. |
Balance at | |||||||||||||||||||||||||
Acquisition Date | Transaction Related Items | ||||||||||||||||||||||||
Total | |||||||||||||||||||||||||
Acquisition | Identifiable | Cash | Shares | Purchase | |||||||||||||||||||||
(In thousands) | Date | Assets | Equity | Goodwill | Intangibles | Paid | Issued | Price | |||||||||||||||||
Connecticut Investment Management, Inc. | 3/5/2007 | $ | 951 | $ | 652 | $ | 753 | $ | 1,363 | $ | 2,000 | $ | - | $ | 2,000 | ||||||||||
Westbank Corporation, Inc. | 1/2/2007 | 716,834 | 42,967 | 79,940 | 14,232 | 58,447 | 4,009 | 117,386 | |||||||||||||||||
The transactions
were accounted for using the purchase method of accounting in accordance with SFAS
No. 141, Business Combinations. Accordingly, the purchase price
was allocated based on the estimated fair market values of the assets and liabilities
acquired. |
||
Connecticut Investment Management, Inc. | ||
On March
5, 2007, the Company completed its acquisition of Connecticut Investment Management,
Inc. (CIMI) a registered investment advisory firm for $2.0 million in
cash. At December 31, 2006 CIMI had approximately $190.0 million in assets under management. |
||
Westbank Corporation Acquisition | ||
On January
2, 2007 the Company completed the acquisition of Westbank Corporation (Westbank), the parent company of Westbank. The aggregate merger consideration was valued
at approximately $117.4 million. Westbank had assets of approximately $716.8 million
and stockholders equity of approximately $43.0 million on January 2, 2007. |
9
5. | Investment Securities | ||||||||||||||||||||||||||||
The following
table presents the amortized cost, gross unrealized gains, gross unrealized losses
and estimated fair values of investment securities at March 31, 2008 and December
31, 2007. |
|||||||||||||||||||||||||||||
March 31, 2008 | December 31, 2007 | ||||||||||||||||||||||||||||
Gross | Gross | Gross | Gross | ||||||||||||||||||||||||||
Amortized | unrealized | unrealized | Fair | Amortized | unrealized | unrealized | Fair | ||||||||||||||||||||||
(In thousands) | cost | gains | losses | value | cost | gains | losses | value | |||||||||||||||||||||
Available for sale | |||||||||||||||||||||||||||||
U.S. Treasury obligations |
$ | 1,092 | $ | 2 | $ | - | $ | 1,094 | $ | 1,092 | $ | 3 | $ | - | $ | 1,095 | |||||||||||||
U.S. Government sponsored enterprise obligations |
180,240 | 1,234 | (4 | ) | 181,470 | 201,408 | 672 | (21 | ) | 202,059 | |||||||||||||||||||
Corporate obligations |
22,502 | 162 | (16 | ) | 22,648 | 22,531 | 130 | (146 | ) | 22,515 | |||||||||||||||||||
Other bonds and obligations |
44,182 | 91 | (1,626 | ) | 42,647 | 52,853 | 56 | (275 | ) | 52,634 | |||||||||||||||||||
Marketable and trust preferred equity securities |
201,672 | 112 | (8,320 | ) | 193,464 | 200,303 | 154 | (3,231 | ) | 197,226 | |||||||||||||||||||
Mortgage-backed securities |
1,641,461 | 27,777 | (1,194 | ) | 1,668,044 | 1,706,966 | 21,098 | (2,572 | ) | 1,725,492 | |||||||||||||||||||
Total available for sale |
2,091,149 | 29,378 | (11,160 | ) | 2,109,367 | 2,185,153 | 22,113 | (6,245 | ) | 2,201,021 | |||||||||||||||||||
Held to maturity | |||||||||||||||||||||||||||||
Mortgage-backed securities |
326,998 | 7,702 | - | 334,700 | 282,887 | 4,362 | (281 | ) | 286,968 | ||||||||||||||||||||
Other bonds |
7,585 | 105 | - | 7,690 | 7,585 | 25 | (33 | ) | 7,577 | ||||||||||||||||||||
Total held to maturity |
334,583 | 7,807 | - | 342,390 | 290,472 | 4,387 | (314 | ) | 294,545 | ||||||||||||||||||||
Total securities |
$ | 2,425,732 | $ | 37,185 | $ | (11,160 | ) | $ | 2,451,757 | $ | 2,475,625 | $ | 26,500 | $ | (6,559 | ) | $ | 2,495,566 | |||||||||||
The following
table presents the fair value of investments with continuous unrealized losses for
less than one year and those that have been in a continuous loss position for more
than one year as of March 31, 2008. |
Less Than One Year | More Than One Year | Total | |||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | ||||||||||||||||||
(In thousands) | value | losses | value | losses | value | losses | |||||||||||||||||
U. S. Treasury obligations | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | |||||||||||
U. S. Government sponsored enterprise obligations | 823 | (4 | ) | - | - | 823 | (4 | ) | |||||||||||||||
Corporate obligations | 4,330 | (16 | ) | - | - | 4,330 | (16 | ) | |||||||||||||||
Other bonds and obligations | 38,216 | (1,626 | ) | - | - | 38,216 | (1,626 | ) | |||||||||||||||
Marketable and trust preferred equity obligations | 40,808 | (8,095 | ) | 1,775 | (225 | ) | 42,583 | (8,320 | ) | ||||||||||||||
Mortgage-backed securities | 76,830 | (1,194 | ) | - | - | 76,830 | (1,194 | ) | |||||||||||||||
Total securities with unrealized losses |
$ | 161,007 | $ | (10,935 | ) | $ | 1,775 | $ | (225 | ) | $ | 162,782 | $ | (11,160 | ) | ||||||||
Of the issues
summarized above, 65 issues have unrealized losses for less than twelve months and
one has an unrealized loss for twelve months or more. Management believes that no
individual unrealized loss as of March 31, 2008 represents an other-than-temporary
impairment. The unrealized losses reported for mortgage-backed securities relate
to securities issued by FNMA, FHLMC and AAA rated securities issued by private institutions
and the unrealized losses on these securities are attributable to changes in market
interest rates. None of the securities are backed by sub-prime mortgage loans. The
unrealized losses reported for corporate obligations and other bonds and obligations
relate to securities that are investment grade and the unrealized losses on these
securities are attributable to changes in market interest rates rather than credit
quality of the issuer. In addition to market interest rates, the unrealized losses
reported for trust preferred equity securities are also attributable to the current
market stress partially resulting from efforts by banks to raise capital. This has
in turn inflated coupon rates on new issues of trust preferred equity securities
versus lower rates on the Companys portfolio of A- to AAA rated, non-perpetual
seasoned issues of trust preferred equity securities. The Company has the ability
and intent to hold the securities contained in the table for a period of time necessary
to recover the unrealized losses, which may be until maturity. |
||
10
6. | Loans | |
The composition of the Companys loan portfolio is as follows: |
March 31, | December 31, | |||||||||
(In thousands) | 2008 | 2007 | ||||||||
Residential real estate | $ | 2,391,755 | $ | 2,360,921 | ||||||
Commercial real estate | 989,961 | 947,185 | ||||||||
Construction | ||||||||||
Residential |
22,547 | 29,023 | ||||||||
Commercial |
208,142 | 247,428 | ||||||||
Commercial business | 454,463 | 457,745 | ||||||||
Consumer | ||||||||||
Home equity and equity lines of credit |
662,395 | 652,107 | ||||||||
Other |
29,691 | 33,560 | ||||||||
Total consumer |
692,086 | 685,667 | ||||||||
Total loans |
4,758,954 | 4,727,969 | ||||||||
Allowance for loan losses |
(45,414 | ) | (43,813 | ) | ||||||
Total loans, net |
$ | 4,713,540 | $ | 4,684,156 | ||||||
At March 31,
2008 and December 31, 2007, the Companys residential real estate loan, residential
construction, home equity loan and equity lines of credit portfolios are entirely
collateralized by one to four family homes and condominiums, the majority of which
are located in Connecticut and Massachusetts. The commercial real estate loan and
commercial construction portfolios are collateralized primarily by multi-family,
commercial and industrial properties located predominately in Connecticut and Massachusetts.
A variety of different assets, including accounts receivable, inventory and property,
and plant and equipment, collateralize the majority of the commercial business loan
portfolio. |
||
The following
table provides a summary of activity in the allowance for loan losses. |
At or For the Three Months | ||||||||
Ended March 31, | ||||||||
(In thousands) | 2008 | 2007 | ||||||
Balance at beginning of period | $ | 43,813 | $ | 37,408 | ||||
Net allowance gained through acquisitions | - | 3,739 | ||||||
Provision for loan losses | 1,700 | 1,000 | ||||||
Charge-offs | ||||||||
Residential and commercial real estate loans |
51 | 2 | ||||||
Commercial business loans |
270 | 538 | ||||||
Consumer loans |
146 | 112 | ||||||
Total charge-offs |
467 | 652 | ||||||
Recoveries | ||||||||
Residential and commercial real estate loans |
15 | 250 | ||||||
Commercial business loans |
320 | 53 | ||||||
Consumer loans |
33 | 132 | ||||||
Total recoveries |
368 | 435 | ||||||
Net charge-offs | 99 | 217 | ||||||
Balance at end of period | $ | 45,414 | $ | 41,930 | ||||
11
NewAlliance Bancshares, Inc. | ||||||||||||||||||||
Notes to Unaudited Consolidated Financial Statements | ||||||||||||||||||||
7. | Goodwill and Identifiable Intangible Assets | |||||||||||||||||||
The changes in the carrying amount of goodwill and identifiable intangible assets for the three months ended March 31, 2008 are summarized as follows: | ||||||||||||||||||||
Total | ||||||||||||||||||||
Core Deposit | Identifiable | |||||||||||||||||||
and Customer | Intangible | |||||||||||||||||||
(In thousands) | Goodwill | Relationships | Assets | |||||||||||||||||
Balance, December 31, 2007 | $ | 531,191 | $ | 53,316 | $ | 53,316 | ||||||||||||||
Other | (3,074 | ) | - | - | ||||||||||||||||
Amortization expense | - | (2,364 | ) | (2,364 | ) | |||||||||||||||
Balance, March 31, 2008 | $ | 528,117 | $ | 50,952 | $ | 50,952 | ||||||||||||||
Estimated amortization expense for the year ending: | ||||||||||||||||||||
Remaining 2008 | $ | 7,092 | $ | 7,092 | ||||||||||||||||
2009 | 8,501 | 8,501 | ||||||||||||||||||
2010 | 7,811 | 7,811 | ||||||||||||||||||
2011 | 7,556 | 7,556 | ||||||||||||||||||
2012 | 7,556 | 7,556 | ||||||||||||||||||
Thereafter | 12,436 | 12,436 | ||||||||||||||||||
The reduction of $3.1 million in goodwill, shown above as other, was primarily due to a reduction of unrecognized tax benefits
for tax positions taken in prior years based on the settlement of an IRS examination.
The components of identifiable intangible assets are comprised of core deposit and customer relationships which had the
following balances at March 31, 2008:
Original | Balance | |||||||||
Recorded | Cumulative | March 31, | ||||||||
(In thousands) | Amount | Amortization | 2008 | |||||||
Core deposit and customer relationships |
$ | 86,908 | $ | 35,956 | $ | 50,952 | ||||
8. | Other Assets | ||||||
Selected components of other assets are as follows: | |||||||
(In thousands) | March 31, 2008 |
December 31, 2007 |
|||||
Deferred tax asset, net | $ | 8,006 | $ | 10,033 | |||
Accrued interest receivable | 33,643 | 35,071 | |||||
Prepaid pension | 13,815 | 14,180 | |||||
Investments in limited partnerships and other investments | 8,940 | 9,069 | |||||
All other | 32,414 | 24,929 | |||||
Total other assets | 96,818 | 93,282 | |||||
12
NewAlliance Bancshares, Inc. | |||||||
Notes to Unaudited Consolidated Financial Statements | |||||||
9. Deposits
A summary of deposits by account type is as follows: | |||||||
(In thousands) | March 31, 2008 |
December 31, 2007 |
|||||
Savings | $ | 1,126,787 | $ | 941,051 | |||
Money market | 494,845 | 492,042 | |||||
NOW | 405,669 | 401,097 | |||||
Demand | 484,380 | 477,408 | |||||
Time | 1,745,933 | 2,062,067 | |||||
Total deposits |
$ | 4,257,614 | $ | 4,373,665 | |||
10. Borrowings
The following is a summary of the Companys borrowed funds: | ||||||||||||||
March 31, | December 31, | |||||||||||||
(In thousands) | 2008 | 2007 | ||||||||||||
FHLB advances (1) | $ | 2,211,038 | $ | 2,136,965 | ||||||||||
Repurchase agreements | 187,512 | 192,145 | ||||||||||||
Mortgage loans payable | 1,425 | 1,459 | ||||||||||||
Junior subordinated debentures issued to affiliated trusts (2) | 24,885 | 24,935 | ||||||||||||
Total borrowings |
$ | 2,424,860 | $ | 2,355,504 | ||||||||||
(1) | Includes fair value adjustments on acquired borrowings, in accordance with SFAS No. 141, Business Combinations, of $8.6 million and $9.6 million at March 31, 2008 and December 31, 2007, respectively. | |
(2) | Includes fair value adjustments on acquired borrowings, in accordance with SFAS No. 141, Business Combinations, of $250,000
and $300,000 at March 31, 2008 and December 31, 2007, respectively. The trusts were organized to facilitate the issuance of
trust preferred securities. The Company acquired these subsidiaries when it acquired Alliance Bancorp of New England, Inc. and Westbank Corporation, Inc. The affiliated trusts are wholly-owned subsidiaries of the Company and the payments of these securities
are irrevocably and unconditionally guaranteed by the Company. |
|
The acquisition fair value adjustments (premiums) are being amortized as an adjustment to interest expense on borrowings over their remaining term using the level yield method. |
FHLB advances are secured by the Companys investment in FHLB stock, a blanket security agreement and other eligible securities. This agreement requires the Bank to maintain as collateral certain qualifying assets, principally mortgage loans. At March 31, 2008 and December 31, 2007, the Bank was in compliance with the FHLB collateral requirements. At March 31, 2008, the Company could borrow an additional $162.6 million from the FHLB, inclusive of a line of credit of approximately $20.0 million. Additional borrowing capacity of approximately $797.4 million would be available by pledging additional eligible securities as collateral. The Company also has borrowing capacity at the Federal Reserve Bank of Bostons discount window, which was approximately $121.5 million as of March 31, 2008, all of which was available on that date. At March 31, 2008, the majority of the Companys $2.20 billion outstanding FHLB advances were at fixed rates, while only $15.0 million had floating rates.
11. Pension and Other Postretirement Benefit Plans
The Company provides various defined benefit and other postretirement benefit plans (postretirement health and life insurance benefits) to substantially all employees hired prior to January 1, 2008. The Company also has supplemental retirement plans (the Supplemental Plans) that provide benefits for certain key executive officers. Benefits under the supplemental plans are based on a predetermined formula and are reduced by other benefits. The liability arising from these plans is being accrued over the participants remaining periods of service so that at the expected retirement dates, the present value of the annual payments will have been expensed.
13
The following table presents the amount of net periodic pension cost for the three months ended March 31, 2008 and 2007. | ||||||||||||||||||||||||
Supplemental | ||||||||||||||||||||||||
Executive | Other Postretirement | |||||||||||||||||||||||
Qualified Pension | Retirement Plans | Benefits | ||||||||||||||||||||||
(In thousands) | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | ||||||||||||||||||
Service cost - benefits earned during the period | $ | 787 | $ | 809 | $ | 134 | $ | 125 | $ | 49 | $ | 50 | ||||||||||||
Interest cost on projected benefit obligation | 1,363 | 1,258 | 177 | 159 | 93 | 88 | ||||||||||||||||||
Expected return on plan assets | (1,798 | ) | (1,786 | ) | - | - | - | - | ||||||||||||||||
Amortization: | ||||||||||||||||||||||||
Transition |
- | - | - | - | 13 | 13 | ||||||||||||||||||
Prior service cost |
13 | 13 | 2 | 2 | - | - | ||||||||||||||||||
Loss (gain) |
- | 79 | - | - | (20 | ) | (6 | ) | ||||||||||||||||
Net periodic benefit cost |
$ | 365 | $ | 373 | $ | 313 | $ | 286 | $ | 135 | $ | 145 | ||||||||||||
|
|
At March 31, 2008, the loan had an outstanding balance of $101.6 million and an interest rate of 4.0%. The Company accounts for its ESOP in accordance with Statement of Position (SOP) 93-6,Employers Accounting for Employee Stock Ownership Plans. Under SOP 93-6, unearned ESOP shares are not considered outstanding and are shown as a reduction of stockholders equity as unearned compensation. The Company will recognize compensation cost equal to the fair value of the ESOP shares during the periods in which they are committed to be released. To the extent that the fair value of the Companys ESOP shares differs from the cost of such shares, this differential will be credited to equity. The Company will receive a tax deduction equal to the cost of the shares released to the extent of the principal paydown on the loan by the ESOP. As the loan is internally leveraged, the loan receivable from the ESOP to the Company is not reported as an asset nor is the debt of the ESOP shown as a liability in the Companys financial statements. Dividends on unallocated shares are used to pay the ESOP debt. The ESOP compensation expense for the three months ended March 31, 2008 and 2007 was approximately $730,000 and $1.0 million, respectively. The amount of loan repayments made by the ESOP is used to reduce the unallocated common stock held by the ESOP. |
The ESOP shares as of March 31, 2008 were as follows: | |||
Shares released for allocation | 975,773 | ||
Unreleased shares | 6,478,789 | ||
Total ESOP shares |
7,454,562 | ||
Market value of unreleased shares at March 31, 2008 (in thousands) | $ | 79,430 |
12. | Stock-Based Compensation |
The Company provides compensation benefits to employees and non-employee directors under its 2005 Long-Term Compensation Plan (the LTCP) which was approved by shareholders. The Company accounts for stock-based compensation using the fair value recognition provisions of revised SFAS No. 123 (SFAS No. 123R), Share Based Payment, which was adopted using the modified prospective transition method effective January 1, 2006. Under SFAS No. 123R, the fair value of stock option and restricted stock awards, measured at grant date, is amortized to compensation expense on a straight-line basis over the vesting period. |
|
The LTCP allows for the issuance of up to 11.4 million Options or Stock Appreciation Rights and up to 4.6 million Stock Awards or Performance Awards. |
|
Option Awards | |
Options awarded to date are for a term of ten years. Substantially all of these options were awarded on the original award date of June 17, 2005 and these 2005 options have the following vesting schedule: 40% vested at year-end 2005, 20% vested at year-end 2006 and 2007, respectively and 20% will vest at year-end of 2008. Subsequent awards have vesting periods of either three |
14
or four years. The Company has assumed a 0.4% forfeiture rate as the majority of the options have been awarded to senior level management. Compensation expense recorded on options for the three months ended March 31, 2008 and 2007 was $1.1 million for both periods or after tax expense of approximately $730,000 and $715,000, respectively. It is anticipated that the Company will recognize expense on options of approximately $4.2 million, $167,000, $142,000, $58,000 and $4,000 in calendar years 2008 through 2012, unless additional awards are granted. |
|
Options to purchase 59,250 shares were granted to employees during the three months ended March 31, 2008 and 60,000 shares were granted during the three months ended March 31, 2007. Using the Black-Scholes option pricing model, the weighted-average grant date fair value was $1.86 and $2.69 for these options which were granted in 2008 and 2007, respectively. The weighted-average related assumptions for the three months ended March 31, 2008 and 2007 are presented in the following table. |
2008 | 2007 | |||||||
Risk-free interest rate | 2.80 | % | 4.46 | % | ||||
Expected dividend yield | 2.15 | % | 1.50 | % | ||||
Expected volatility | 16.11 | % | 16.02 | % | ||||
Expected life | 6.25 years | 3.84 years | ||||||
A summary of option activity under the LTCP as of March 31, 2008 and changes during the period ended is presented below. | |||||||||||||
Weighted- | |||||||||||||
Weighted- | Average | Aggregate | |||||||||||
Average | Remaining | Intrinsic | |||||||||||
Exercise | Contractual | Value | |||||||||||
Shares | Price | Term | ($000) | ||||||||||
Options outstanding at beginning of year | 8,537,660 | $ | 14.41 | ||||||||||
Granted | 59,250 | 12.08 | |||||||||||
Exercised | - | - | |||||||||||
Forfeited/cancelled | (2,350 | ) | 13.84 | ||||||||||
Expired | (5,850 | ) | 14.39 | ||||||||||
Options outstanding at March 31, 2008 | 8,588,710 | $ | 14.40 | 7.26 | $ | 11 | |||||||
Options exercisable at March 31, 2008 | 6,749,072 | $ | 14.40 | 7.22 | $ | - | |||||||
The following table summarizes the nonvested options during the three months ended March 31, 2008. | ||||||||
Weighted-average | ||||||||
Grant-Date | ||||||||
Shares | Fair Value | |||||||
Nonvested at January 1, 2008 | 1,801,508 | $ | 2.65 | |||||
Granted | 59,250 | 1.86 | ||||||
Vested | (18,770 | ) | 2.67 | |||||
Forfeited / Cancelled | (2,350 | ) | 2.39 | |||||
Nonvested at March 31, 2008 | 1,839,638 | $ | 2.62 | |||||
Restricted Stock Awards | |
To date, 3,530,217 shares of restricted stock have been awarded under the LTCP. The majority of these shares were awarded in 2005 and these 2005 awards have a vesting schedule of 15% per year for six years and 10% in the seventh year. Subsequent awards in 2006, 2007 and 2008 have vesting schedules of either three or four years. The associated expense is recorded based on the vesting schedules. Compensation expense recorded on restricted stock for the three months ended March 31, 2008 and 2007 was approximately $1.9 million and $1.7 million or after tax expense of approximately $1.2 million and $1.1 million, respectively. The Company anticipates that it will record expense of approximately $7.0 million, $6.4 million, $6.3 million, $4.1 million and $29,000 in calendar years 2008 through 2012, respectively, unless additional awards are granted. |
15
The following table summarizes the nonvested restricted stock awards during the three months ended March 31, 2008. | ||||||||
Weighted-average | ||||||||
Grant-Date | ||||||||
Shares | Fair Value | |||||||
Nonvested at January 1, 2008 | 2,262,216 | $ | 14.42 | |||||
Granted | 58,300 | 12.08 | ||||||
Vested | (485,611 | ) | 14.42 | |||||
Forfeited / Cancelled | - | - | ||||||
Nonvested at March 31, 2008 | 1,834,905 | $ | 14.34 | |||||
13. | Income Taxes |
The Company had transactions in which the related tax effect was recorded directly to stockholders equity or goodwill instead of operations. Transactions in which the tax effect was recorded directly to stockholders equity included the tax effects of unrealized gains and losses on available for sale securities and excess tax benefits related to the vesting of restricted stock. Deferred taxes charged to goodwill were in connection with prior acquisitions. The Company had a net deferred tax asset of $8.0 million and $10.0 million at March 31, 2008 and December 31, 2007, respectively. |
|
The allocation of deferred tax expense involving items charged to income, items charged directly to shareholders equity and items charged to goodwill is as follows: |
Three Months Ended | |||||||||
March 31, | |||||||||
(In thousands) | 2008 | 2007 | |||||||
Deferred tax expense allocated to: | |||||||||
Stockholders equity, tax effect of net unrealized gain on investment |
|||||||||
securities available for sale, net of valuation allowance |
$ | 798 | $ | 3,234 | |||||
Stockholders equity, tax impact of adoption of EITF 06-04 |
(572 | ) | - | ||||||
Goodwill |
(256 | ) | (3,782 | ) | |||||
Income |
2,057 | 3,240 | |||||||
Total deferred tax expense |
$ | 2,027 | $ | 2,692 | |||||
The Company adopted the provisions of FIN 48, Accounting for Uncertainty in Income Taxes, on January 1, 2007. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: | |||||
Three months ended | |||||
(In thousands) | March 31, 2008 | ||||
Balance at December 31, 2007 | $ | 4,436 | |||
Additions for tax positions of current year |
40 | ||||
Additions for tax positions of prior year |
15 | ||||
Reductions for tax positions of prior year |
(205 | ) | |||
Settlements with taxing authorities |
(3,864 | ) | |||
Balance at March 31, 2008 |
$ | 422 | |||
Included in the balance at March 31, 2008 are $422,000 of tax positions for which the ultimate deductibility is highly uncertain and for which the disallowance of the tax position would affect the annual effective tax rate. The Company anticipates that approximately $75,000 to $125,000 of unrecognized tax benefits will reverse in the next twelve months due to statute expirations. The Company recognizes interest and penalties accrued related to unrecognized tax benefits as a component of income tax expense. As of March 31, 2008, the Company has accrued approximately $121,000 in interest and penalties. |
|
The Company is generally no longer subject to federal, state or local income tax examinations by tax authorities for the years before 2002. In the first quarter of 2006, the Internal Revenue Service (IRS) commenced an examination of the 2003 and 2004 tax years for the Company and various acquired entities. As of March 31, 2008, the IRS has completed their audit and they have communicated $64,000 of adjustments before interest, to the audited tax years. As a result of the settlement with the IRS, the Company released $924,000 of interest and penalties on unrecognized tax benefits through continuing operations and $2.9 million of unrecognized tax benefits through goodwill. |
16
14. | Commitments and Contingencies |
The Company is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments consist primarily of commitments to extend credit and standby letters of credit. Commitments to extend credit are agreements to lend to customers as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses that may require payment of a fee. Since many of the commitments could expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. These commitments consist principally of unused commercial and consumer lines of credit. Standby letters of credit generally are contingent upon the failure of the customer to perform according to the terms of an underlying contract with a third party. The credit risks associated with commitments to extend credit and standby letters of credit are essentially the same as those involved with extending loans to customers and are subject to normal credit policies. Collateral may be obtained based on managements assessment of the customers creditworthiness. |
|
The table below summarizes the Companys commitments and contingencies discussed above. |
March 31, | December 31, | ||||||
(In thousands) | 2008 | 2007 | |||||
Loan commitments | $ | 152,531 | $ | 71,191 | |||
Unadvanced portion of construction loans | 145,774 | 163,302 | |||||
Standby letters of credit | 14,852 | 15,885 | |||||
Unadvanced portion of lines of credit | 572,884 | 560,298 | |||||
Total commitments |
$ | 886,041 | $ | 810,676 | |||
Other Commitments | |
As of March 31, 2008 and December 31, 2007, the Company was contractually committed under limited partnership agreements to make additional partnership investments of approximately $2.8 million for each period which constitutes our maximum potential obligation to these partnerships. The Company is obligated to make additional investments in response to formal written requests, rather than a funding schedule. Funding requests are submitted when the partnerships plan to make additional investments. |
|
There are no material legal proceedings or other litigation. See Part II, Item I, Legal Proceedings, of this Form 10-Q. | |
15. | Stockholders Equity |
At March 31, 2008 and December 31, 2007, stockholders equity amounted to $1.41 billion, representing 17.3% and 17.1% of total assets, respectively. The Company paid cash dividends totaling $0.065 per share on common stock during the three months ended March 31, 2008. |
|
Dividends | |
The Company and the Bank are subject to dividend restrictions imposed by various regulators. Connecticut banking laws limit the amount of annual dividends that the Bank may pay to the Company to an amount that approximates the Banks net income retained for the current year plus net income retained for the two previous years. In addition, the Bank may not declare or pay dividends on, and the Company may not repurchase any of its shares of its common stock if the effect thereof would cause stockholders equity to be reduced below applicable regulatory capital maintenance requirements or if such declaration, payment or repurchase would otherwise violate regulatory requirements. |
|
Share Repurchase Plan | |
On January 31, 2006, the Companys Board of Directors authorized a repurchase plan of up to an additional 10.0 million shares or approximately 10% of the then outstanding Company common stock. Under this plan the Company has repurchased 5,291,000 shares of common stock at a weighted average price of $13.46 per share as of March 31, 2008. There is no set expiration date for this repurchase plan. |
|
Regulatory Capital | |
Capital guidelines of the Federal Reserve Board and the Federal Deposit Insurance Corporation (FDIC) require the Company and its banking subsidiary to maintain certain minimum ratios, as set forth below. At March 31, 2008, the Company and the Bank were deemed to be well capitalized under the regulations of the Federal Reserve Board and the FDIC, respectively, and in compliance with the applicable capital requirements. |
17
NewAlliance Bancshares, Inc.
Notes to Unaudited Consolidated Financial
Statements
The following table provides information on the capital ratios. | ||||||||||||||||||||||||
To Be Well | ||||||||||||||||||||||||
For Capital | Capitalized Under | |||||||||||||||||||||||
Adequacy | Prompt Corrective | |||||||||||||||||||||||
Actual | Purposes | Action Provisions | ||||||||||||||||||||||
(Dollars in thousands) | Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||||||||
NewAlliance Bank | ||||||||||||||||||||||||
March 31, 2008 |
||||||||||||||||||||||||
Tier 1 Capital (to Average Assets) |
$ | 688,883 | 9.2 | % | $ | 301,107 | 4.0 | % | $ | 376,384 | 5.0 | % | ||||||||||||
Tier 1 Capital (to Risk Weighted Assets) |
688,883 | 15.5 | 177,266 | 4.0 | 265,898 | 6.0 | ||||||||||||||||||
Total Capital (to Risk Weighted Assets) |
734,297 | 16.6 | 354,531 | 8.0 | 443,164 | 10.0 | ||||||||||||||||||
December 31, 2007 |
||||||||||||||||||||||||
Tier 1 Capital (to Average Assets) |
$ | 692,735 | 9.1 | % | $ | 304,876 | 4.0 | % | $ | 381,095 | 5.0 | % | ||||||||||||
Tier 1 Capital (to Risk Weighted Assets) |
692,735 | 15.6 | 178,102 | 4.0 | 267,153 | 6.0 | ||||||||||||||||||
Total Capital (to Risk Weighted Assets) |
736,548 | 16.5 | 356,204 | 8.0 | 445,254 | 10.0 | ||||||||||||||||||
NewAlliance Bancshares, Inc. | ||||||||||||||||||||||||
March 31, 2008 |
||||||||||||||||||||||||
Tier 1 Capital (to Average Assets) |
$ | 845,112 | 11.2 | % | $ | 301,849 | 4.0 | % | $ | 377,311 | 5.0 | % | ||||||||||||
Tier 1 Capital (to Risk Weighted Assets) |
845,112 | 18.9 | 178,462 | 4.0 | 267,692 | 6.0 | ||||||||||||||||||
Total Capital (to Risk Weighted Assets) |
890,526 | 20.0 | 356,923 | 8.0 | 446,154 | 10.0 | ||||||||||||||||||
December 31, 2007 |
||||||||||||||||||||||||
Tier 1 Capital (to Average Assets) |
$ | 833,596 | 10.9 | % | $ | 305,288 | 4.0 | % | $ | 381,610 | 5.0 | % | ||||||||||||
Tier 1 Capital (to Risk Weighted Assets) |
833,596 | 18.6 | 179,225 | 4.0 | 268,837 | 6.0 | ||||||||||||||||||
Total Capital (to Risk Weighted Assets) |
877,409 | 19.6 | 358,449 | 8.0 | 448,062 | 10.0 | ||||||||||||||||||
16. Other Comprehensive Income
The following table presents the components of other comprehensive income and the related tax effects for the three months ended March 31, 2008 and 2007. | ||||||||||||||||||||||||
Three Months Ended | ||||||||||||||||||||||||
March 31, | ||||||||||||||||||||||||
(In thousands) | 2008 | 2007 | ||||||||||||||||||||||
Net income | $ | 12,934 | $ | 9,296 | ||||||||||||||||||||
Other comprehensive income, before tax | ||||||||||||||||||||||||
Unrealized gains on securities |
||||||||||||||||||||||||
Unrealized holding gains, arising during the period |
3,487 | 9,400 | ||||||||||||||||||||||
Reclassification adjustment for gains included in net income |
(1,138 | ) | (158 | ) | ||||||||||||||||||||
Other comprehensive income, before tax | 2,349 | 9,242 | ||||||||||||||||||||||
Income tax expense, net of valuation allowance | (798 | ) | (3,234 | ) | ||||||||||||||||||||
Other comprehensive income, net of tax | 1,551 | 6,008 | ||||||||||||||||||||||
Comprehensive income | $ | 14,485 | $ | 15,304 | ||||||||||||||||||||
18
NewAlliance
Bancshares, Inc.
Notes to Unaudited Consolidated Financial Statements
17. Earnings Per Share
The calculation of basic and diluted earnings per share for the three months ended March 31, 2008 and 2007 is presented below. | |||||||||
Three Months Ended | |||||||||
March 31, | |||||||||
(In thousands, except per share data) | 2008 | 2007 | |||||||
Net income | $ | 12,934 | $ | 9,296 | |||||
Average common shares outstanding for basic EPS | 100,277 | 104,197 | |||||||
Effect of dilutive stock options and unvested stock awards | 53 | 503 | |||||||
Average common and common-equivalent shares for dilutive EPS | 100,330 | 104,700 | |||||||
Net income per common share: | |||||||||
Basic |
$ | 0.13 | $ | 0.09 | |||||
Diluted |
0.13 | 0.09 | |||||||
19
Forward-Looking Statements
This report may contain certain forward-looking statements as that term is defined in
the U.S. federal securities laws.
Forward-looking statements are based on certain
assumptions and describe future plans, strategies, and expectations of Management
and are generally identified by use of the word plan, believe, expect, intend, anticipate, estimate, project, or similar expressions. Managements ability to
predict results or the actual effects of its plans or strategies is inherently uncertain.
Accordingly, actual results may differ materially from anticipated results.
Factors that could have a material adverse effect on the operations of NewAlliance
Bancshares, Inc. (NewAlliance or the Company) and its subsidiaries
include, but are not limited to:
| Changes in the interest rate environment may reduce net interest margin and/or the volumes and values of loans made or held as well as the value of other financial assets held; |
|
| General economic
or business conditions, either nationally or regionally, may be less favorable than
expected, resulting in, among other things, a deterioration in credit quality and/or
a reduced demand for credit or other services; |
|
| Competitive pressures among depository and other financial institutions may increase significantly and may decrease the profit margin associated with its business; |
|
| Legislative or regulatory changes, including those related to residential mortgages and changes in accounting standards, may adversely affect the businesses in which NewAlliance is engaged; |
|
| Local, state or federal taxing authorities may take tax positions that are adverse to NewAlliance; |
|
| Costs or difficulties related to the integration of acquired businesses may be greater than expected; |
|
| Expected cost savings associated with completed mergers may not fully be realized or realized within expected time frames; |
|
| Deposit attrition, customer loss or revenue loss following completed mergers may be greater than expected; |
|
| Adverse changes may occur in the securities markets impacting the value of NewAlliances investments; and |
|
| Competitors of NewAlliance may have greater financial resources and develop products that enable them to compete more successfully than NewAlliance. |
Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. Except as required by applicable law or regulation. Management undertakes no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made.
Item 2. Managements Discussion
and Analysis of Financial Condition and Results of Operations
The following
Managements Discussion and Analysis of Financial Condition and Results of
Operations (MD&A) is intended to help the reader understand NewAlliance
Bancshares, Inc., our operations and our present business environment. We believe
transparency and clarity are the primary goals of successful financial reporting.
We remain committed to increasing the transparency of our financial reporting, providing
our stockholders with informative financial disclosures and presenting an accurate
view of our financial disclosures, financial position and operating results.
MD&A is provided as a supplement toand should be read in conjunction withour Consolidated Financial Statements and the accompanying notes thereto contained in Part I, Item 1, of this report as well as our Annual Report on Form 10-K for the year ended December 31, 2007. The following sections are included in MD&A:
Our Business a general description of our business, our objectives and regulatory considerations. |
Critical Accounting Estimates a discussion of accounting estimates that require critical judgments and estimates. |
Recent Accounting Changes a discussion of recently adopted accounting pronouncements or changes. |
Operating Results an analysis of our Companys consolidated results of operations for the periods presented in our Consolidated Financial Statements. |
Financial Condition and Management of Market and Interest Rate Risk an overview of financial condition and market and interest rate risk. |
20
Our Business
General
The Companys results of operations depend primarily on net interest income, which is the
difference between the income earned on its loan and securities portfolios and its
cost of funds, consisting of the interest paid on deposits and borrowings. Results
of operations are also affected by the Companys provision for loan losses,
income and expenses pertaining to other real estate owned, gains and losses from
sales of loans and securities and non-interest income and expenses.Non-interest
income primarily consists of fee income from depositors and wealth management services
and bank owned life insurance (BOLI). Non-interest expenses consist
principally of compensation and employee benefits, occupancy, data processing, amortization
of acquisition related intangible assets, marketing, professional services and other
operating expenses.
Our Objectives
| Build high quality, profitable loan portfolios using organic, purchase and acquisition strategies; |
|
| Increase core deposit relationships with a focus on checking and savings accounts; |
|
| Increase the non-interest income component of total revenues through development of banking-related fee income and growth in wealth management services; |
|
| Grow through a disciplined acquisition strategy, supplemented by de-novo branching; |
|
| Improve operating efficiencies; and |
|
| Utilize technology to enhance superior customer service and products. |
Regulatory Considerations
Critical Accounting Estimates
21
Income Taxes
Pension and Other Postretirement Benefits
Goodwill and Identifiable Intangible
Assets
Allowance for Loan Losses
Stock-Based Compensation
A complete
discussion of critical accounting estimates can be found in the Companys most
recent Annual Report on Form 10-K (fiscal year ended December 31, 2007).
Recent Accounting Changes
We adopted the following new accounting pronouncements on January 1, 2008:
| Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements; |
|
| SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities; |
|
| Emerging Issues Task Force (EITF) Issue 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements; and |
|
| EITF Issue 06-10, Accounting for Collateral Assignment Split-Dollar Life Insurance Arrangements. |
22
SFAS No. 159 had no impact on retained earnings
as management did not elect the fair value option for any of the Companys
eligible financial assets or liabilities as of January 1, 2008.
Operating
Results for the Three Months Ended March 31, 2008 and 2007
Executive
Overview
Selected financial data, ratios and per share data are provided in Table 1.
23
Table 1: Selected Data | ||||||||
Three Months Ended | ||||||||
March 31, | ||||||||
(Dollars in thousands, except per share data) | 2008 | 2007 | ||||||
Condensed Income Statement | ||||||||
Interest and dividend income | $ | 102,214 | $ | 96,806 | ||||
Interest expense | 56,208 | 53,401 | ||||||
Net interest income before provision for loan losses | 46,006 | 43,405 | ||||||
Provision for loan losses | 1,700 | 1,000 | ||||||
Net interest income after provision for loan losses | 44,306 | 42,405 | ||||||
Non-interest income | 15,666 | 14,229 | ||||||
Operating expenses | 42,181 | 40,902 | ||||||
Merger related charges | 56 | 1,867 | ||||||
Income before income taxes | 17,735 | 13,865 | ||||||
Income tax provision | 4,801 | 4,569 | ||||||
Net income | $ | 12,934 | $ | 9,296 | ||||
Weighted average shares outstanding | ||||||||
Basic |
100,277,267 | 104,196,785 | ||||||
Diluted |
100,330,148 | 104,699,748 | ||||||
Earnings per share | ||||||||
Basic |
$ | 0.13 | $ | 0.09 | ||||
Diluted |
0.13 | 0.09 | ||||||
Financial Ratios | ||||||||
Return on average assets (1) | 0.64 | % | 0.48 | % | ||||
Return on average equity (1) | 3.66 | 2.74 | ||||||
Net interest margin (1) | 2.56 | 2.50 | ||||||
Non-GAAP Ratios | ||||||||
Efficiency ratio (2) | 69.24 | 75.15 | ||||||
Per share data | ||||||||
Book value per share | $ | 13.03 | $ | 12.62 | ||||
Tangible book value per share | 7.70 | 7.40 | ||||||
Table 2 below sets forth certain
information concerning average interest-earning assets and interest-bearing liabilities
and their associated yields or rates for the periods indicated. The average yields
and costs are derived by dividing income or expenses by the average balances of
interest-earning assets or interest-bearing liabilities, respectively, for the periods
shown and reflect annualized yields and costs. Average balances are computed using
daily balances. Yields and amounts earned include loan fees and fair value adjustments
related to acquired loans, deposits and borrowings. Loans held for sale and nonaccrual
loans have been included in interest-earning assets for purposes of these computations.
Table 3 below presents the extent to which changes in interest rates and changes
in volume of interest-earning assets and interest-bearing liabilities have affected
the Companys interest income and interest expense during the periods indicated.
Information is provided in each category with respect to: (i) change attributable
to change in volume (change in volume multiplied by prior rate), (ii) change attributable
to change in rate (change in rate multiplied by prior volume); and (iii) the change
attributable to rate and volume (change in rate multiplied by change in volume),
which is prorated between the changes in rate and volume.
24
Table 2: Average Balance Sheets for the Three Months Ended March 31, 2008 and 2007 | ||||||||||||||||||||||||
Three Months Ended | ||||||||||||||||||||||||
March 31, 2008 | March 31, 2007 | |||||||||||||||||||||||
Average | Average | |||||||||||||||||||||||
Average | Yield/ | Average | Yield/ | |||||||||||||||||||||
(Dollars in thousands) | Balance | Interest | Rate | Balance | Interest | Rate | ||||||||||||||||||
Interest-earning assets | ||||||||||||||||||||||||
Loans |
||||||||||||||||||||||||
Residential real estate |
$ | 2,396,849 | $ | 33,278 | 5.55 | % | $ | 2,146,803 | $ | 29,820 | 5.56 | % | ||||||||||||
Commercial real estate |
1,199,161 | 18,887 | 6.30 | 1,121,284 | 18,372 | 6.55 | ||||||||||||||||||
Commercial business |
456,668 | 7,365 | 6.45 | 444,460 | 8,118 | 7.31 | ||||||||||||||||||
Consumer |
687,913 | 10,287 | 5.98 | 651,553 | 10,754 | 6.60 | ||||||||||||||||||
Total Loans |
4,740,591 | 69,817 | 5.89 | 4,364,100 | 67,064 | 6.15 | ||||||||||||||||||
Short-term investments |
28,668 | 284 | 3.96 | 64,418 | 878 | 5.45 | ||||||||||||||||||
Investment securities |
2,409,659 | 32,113 | 5.33 | 2,512,434 | 28,864 | 4.60 | ||||||||||||||||||
Total interest-earning assets |
7,178,918 | $ | 102,214 | 5.70 | % | 6,940,952 | $ | 96,806 | 5.58 | % | ||||||||||||||
Non-interest-earning assets |
946,738 | 849,415 | ||||||||||||||||||||||
Total assets |
$ | 8,125,656 | $ | 7,790,367 | ||||||||||||||||||||
Interest-bearing liabilities | ||||||||||||||||||||||||
Deposits |
||||||||||||||||||||||||
Money market |
$ | 492,249 | $ | 3,221 | 2.62 | % | $ | 508,232 | $ | 3,991 | 3.14 | % | ||||||||||||
NOW |
381,017 | 517 | 0.54 | 418,209 | 1,042 | 1.00 | ||||||||||||||||||
Savings |
998,291 | 5,750 | 2.30 | 841,355 | 3,234 | 1.54 | ||||||||||||||||||
Time |
1,942,892 | 20,510 | 4.22 | 2,137,139 | 23,754 | 4.45 | ||||||||||||||||||
Total interest-bearing deposits |
3,814,449 | 29,998 | 3.15 | 3,904,935 | 32,021 | 3.28 | ||||||||||||||||||
Repurchase agreements |
189,980 | 1,149 | 2.42 | 200,814 | 1,923 | 3.83 | ||||||||||||||||||
FHLB advances and other borrowings |
2,170,195 | 25,061 | 4.62 | 1,740,776 | 19,457 | 4.47 | ||||||||||||||||||
Total interest-bearing-liabilities |
6,174,624 | 56,208 | 3.64 | % | 5,846,525 | 53,401 | 3.65 | % | ||||||||||||||||
Non-interest-bearing demand deposits |
459,678 | 506,646 | ||||||||||||||||||||||
Other non-interest-bearing liabilities |
76,440 | 78,166 | ||||||||||||||||||||||
Total liabilities |
6,710,742 | 6,431,337 | ||||||||||||||||||||||
Equity |
1,414,914 | 1,359,030 | ||||||||||||||||||||||
Total liabilities and equity |
$ | 8,125,656 | $ | 7,790,367 | ||||||||||||||||||||
Net interest-earning assets |
$ | 1,004,294 | $ | 1,094,427 | ||||||||||||||||||||
Net interest income |
$ | 46,006 | $ | 43,405 | ||||||||||||||||||||
Interest rate spread |
2.06 | % | 1.93 | % | ||||||||||||||||||||
Net interest margin (net interest income |
||||||||||||||||||||||||
as a percentage of total interest-earning assets) |
2.56 | % | 2.50 | % | ||||||||||||||||||||
Ratio of total interest-earning assets |
||||||||||||||||||||||||
to total interest-bearing liabilities |
116.26 | % | 118.72 | % | ||||||||||||||||||||
25
Table 3: Rate/Volume Analysis | ||||||||||||
Three Months Ended | ||||||||||||
March 31, 2008 | ||||||||||||
Compared to | ||||||||||||
Three Months Ended | ||||||||||||
March 31, 2007 | ||||||||||||
Increase (Decrease) | ||||||||||||
Due to | ||||||||||||
(In thousands) | Rate | Volume | Net | |||||||||
Interest-earning assets | ||||||||||||
Loans |
||||||||||||
Residential real estate |
$ | (13 | ) | $ | 3,471 | $ | 3,458 | |||||
Commercial real estate |
(730 | ) | 1,245 | 515 | ||||||||
Commercial business |
(971 | ) | 218 | (753 | ) | |||||||
Consumer |
(1,046 | ) | 579 | (467 | ) | |||||||
Total loans |
(2,760 | ) | 5,513 | 2,753 | ||||||||
Short-term investments |
(196 | ) | (398 | ) | (594 | ) | ||||||
Investment securities |
4,468 | (1,219 | ) | 3,249 | ||||||||
Total interest-earning assets |
$ | 1,512 | $ | 3,896 | $ | 5,408 | ||||||
Interest-bearing liabilities | ||||||||||||
Deposits |
||||||||||||
Money market |
$ | (647 | ) | $ | (123 | ) | $ | (770 | ) | |||
NOW |
(439 | ) | (86 | ) | (525 | ) | ||||||
Savings |
1,831 | 685 | 2,516 | |||||||||
Time |
(1,155 | ) | (2,089 | ) | (3,244 | ) | ||||||
Total interest bearing deposits |
(410 | ) | (1,613 | ) | (2,023 | ) | ||||||
Repurchase agreements |
(675 | ) | (99 | ) | (774 | ) | ||||||
FHLB advances and other borrowings |
664 | 4,940 | 5,604 | |||||||||
Total interest-bearing liabilities |
(421 | ) | 3,228 | 2,807 | ||||||||
Increase in net interest income | $ | 1,933 | $ | 668 | $ | 2,601 | ||||||
Net Interest Income Analysis
As shown in Table 2, net interest
income for the quarter ended March 31, 2008 was $46.0 million, an increase of $2.6
million from March 31, 2007. The increase is due to a 6 basis point increase in
the net interest margin to 2.56% at March 31, 2008 from 2.50% from the same period
in the prior year. This increase was partially offset by the $90.1 million decrease
in net interest-earning assets as the increase in interest-bearing liabilities outpaced
the increase in interest-earning assets due to a decline in non-interest bearing
liabilities of $48.7 million.
Interest income increased $5.4 million to $102.2
million at March 31, 2008 due to the continued positive effects of the June 2007
investment portfolio restructuring and to a $2.8 million increase attributed to
the loan portfolio.
While all loan categories experienced increases in average
balances, the residential real estate loan portfolio was the main driver of the
growth and offset the 26 basis point decline in average yield earned on loans. The
decrease in the average yield earned on loans was in response to the Federal Reserve
Bank rate cuts in the first quarter as newly originated loans and loans that were
reset were at lower rates. The increase in average balances was due to increased
organic loan originations as the Company took advantage of the pricing opportunities
in our lending area due to the continued dislocations in the credit market, which
has diminished competition in the short term. Loan portfolio volume accounted for
approximately $5.5 million of the increase in interest income.
The restructuring
of the investment portfolio in the 2nd quarter of 2007 led to a 73 basis
point increase in the average yield earned over the prior year period. The increase
in the yield earned offset the $102.8 million decline in the average balance of
investment securities as the Company used cash flows from investments as one of
the vehicles to fund loan growth and offset deposit outflows.
26
Provision for Loan Losses
Management performs a monthly review of the
loan portfolio, and based on this review determines the level of the provision necessary
to maintain an adequate allowance for loan losses (allowance). Management
recorded a provision for loan losses of $1.7 million for the three months ended
March 31, 2008. The primary factors that influenced managements decision to
record a provision were growth in the loan portfolio, an increase in non-performing
loans, an increase in adversely classified loans and maintenance of key coverage
ratios. A provision for loan losses of $1.0 million was recorded for the three months
ended March 31, 2007, based on the level of net charge-offs, delinquencies, nonperforming
loans and criticized assets at that time.
At March 31, 2008, the allowance for
loan losses was $45.4 million, which represented 0.95% of total loans and 239.16%
of nonperforming loans. This compared to the allowance for loan losses of $43.8
million at December 31, 2007 which represented 267.38% of nonperforming loans and
0.93% of total loans.
Table 4: Non-Interest Income | ||||||||||||||||
Three Months Ended | ||||||||||||||||
March 31, | Change | |||||||||||||||
(Dollars in thousands) | 2008 | 2007 | Amount | Percent | ||||||||||||
Depositor service charges | $ | 6,632 | $ | 6,489 | $ | 143 | 2.20 | % | ||||||||
Loan and servicing income | 381 | 446 | (65 | ) | (14.57 | ) | ||||||||||
Trust fees | 1,670 | 1,667 | 3 | 0.18 | ||||||||||||
Investment management, brokerage & insurance fees | 2,532 | 1,674 | 858 | 51.25 | ||||||||||||
Bank owned life insurance | 1,529 | 1,570 | (41 | ) | (2.61 | ) | ||||||||||
Net gain on securities | 1,138 | 158 | 980 | 620.25 | ||||||||||||
Net gain on sale of loans | 257 | 197 | 60 | 30.46 | ||||||||||||
Other | 1,527 | 2,028 | (501 | ) | (24.70 | ) | ||||||||||
Total non-interest income |
$ | 15,666 | $ | 14,229 | $ | 1,437 | 10.10 | % | ||||||||
Non-Interest Income
| Investment
management, brokerage and insurance fees have increased mainly due to the sales
of fixed annuity products resulting from a favorable yield curve for these products.
Investment income also increased due to the acquisition of Connecticut Investment
Management, Inc. in March of 2007. Increased sales personnel and strong marketing
efforts have contributed to increased trading activity and the sales of investment
products. |
|
| Net gain
on securities increased due to the gains recorded on the sale of adjustable rate
mortgage backed securities. These securities were sold at a premium and were sold
in order to reduce prepayment risk and offset deposit outflow. Partially offsetting
the mortgage-backed securities gain was a loss on the sale of a utility stock that
was sold in order to reduce the Companys exposure in equity securities. |
27
| Depositor service charges increased primarily due to visa check card and merchant services income primarily attributable to increased volume. | |
| Other income decreased due to a net loss recorded on limited partnerships during the first quarter of 2008, compared to a net gain recorded in the prior year period, partially offset by the receipt of approximately $500,000 from the partial redemption of the Companys stake in Visa Inc., following Visas initial public offering. |
Table 5: Non-Interest Expense | ||||||||||||||||
Three Months Ended | ||||||||||||||||
March 31, | Change | |||||||||||||||
(Dollars in thousands) | 2008 | 2007 | Amount | Percent | ||||||||||||
Salaries and employee benefits | $ | 23,689 | $ | 21,857 | $ | 1,832 | 8.38 | % | ||||||||
Occupancy | 4,895 | 4,404 | 491 | 11.15 | ||||||||||||
Furniture and fixtures | 1,686 | 1,741 | (55 | ) | (3.16 | ) | ||||||||||
Outside services | 4,273 | 4,578 | (305 | ) | (6.66 | ) | ||||||||||
Advertising, public relations, and sponsorships | 1,709 | 1,679 | 30 | 1.79 | ||||||||||||
Amortization of identifiable intangible assets | 2,364 | 3,088 | (724 | ) | (23.45 | ) | ||||||||||
Merger related charges | 56 | 1,867 | (1,811 | ) | (97.00 | ) | ||||||||||
Other | 3,565 | 3,555 | 10 | 0.28 | ||||||||||||
Total non-interest expense |
$ | 42,237 | $ | 42,769 | $ | (532 | ) | (1.24 | )% | |||||||
Non-Interest Expense
| Conversion and merger related charges decreased due to charges for legal, consulting, advertising and data processing associated with the Westbank acquisition that occurred in 2007. |
|
| Amortization
of identifiable intangible assets decreased due to using an accelerated method of
amortization for core deposit intangibles which results in a higher level of expense
in earlier periods. Amortization of non-compete agreements decreased due to the
expiration of all agreements in the third quarter of 2007. |
|
| Salaries
and employee benefits increased as a result of severance recorded for an executive
that is no longer with the Company, and increased bonus accruals attributable to
increased sales of investment products. These increases were partially offset by
a decrease in ESOP expense due to a lower average stock price during the first three
months of 2008 as compared to the same period in 2007. |
|
| Occupancy
expense increased due to a charge of approximately $350,000 in order to facilitate
the disposition of excess leased space and increased maintenance and repair costs
spread throughout the branch network. |
Income Tax Provision
The decrease in the effective tax rate for the three
months ended March 31, 2008 is primarily due to the reduction of $924,000 of unrecognized
tax benefits for tax positions of prior years resulting from the settlement of the
IRS audit in the first quarter of 2008.
28
Financial Condition
Financial
Condition Summary
Investment Securities
The following table presents the amortized cost
and fair value of investment securities at March 31, 2008 and December 31, 2007.
Table 6: Investment Securities | ||||||||||||||||
March 31, 2008 | December 31, 2007 | |||||||||||||||
Amortized | Fair | Amortized | Fair | |||||||||||||
(In thousands) | cost | value | cost | value | ||||||||||||
Available for sale | ||||||||||||||||
U.S. Treasury obligations |
$ | 1,092 | $ | 1,094 | $ | 1,092 | $ | 1,095 | ||||||||
U.S. Government sponsored enterprise obligations |
180,240 | 181,470 | 201,408 | 202,059 | ||||||||||||
Corporate obligations |
22,502 | 22,648 | 22,531 | 22,515 | ||||||||||||
Other bonds and obligations |
44,182 | 42,647 | 52,853 | 52,634 | ||||||||||||
Marketable and trust preferred equity securities |
201,672 | 193,464 | 200,303 | 197,226 | ||||||||||||
Mortgage-backed securities |
1,641,461 | 1,668,044 | 1,706,966 | 1,725,492 | ||||||||||||
Total available for sale |
2,091,149 | 2,109,367 | 2,185,153 | 2,201,021 | ||||||||||||
Held to maturity | ||||||||||||||||
Mortgage-backed securities |
326,998 | 334,700 | 282,887 | 286,968 | ||||||||||||
Other bonds |
7,585 | 7,690 | 7,585 | 7,577 | ||||||||||||
Total held to maturity |
334,583 | 342,390 | 290,472 | 294,545 | ||||||||||||
Total securities |
$ | 2,425,732 | $ | 2,451,757 | $ | 2,475,625 | $ | 2,495,566 | ||||||||
SFAS No. 115 requires
the Company to designate its securities as held to maturity, available for sale
or trading depending on the Companys intent regarding its investments at the
time of purchase. The Company does not currently maintain a portfolio of trading
securities. As of March 31, 2008, $2.11 billion, or 86.3%, of the portfolio, was
classified as available for sale and $334.6 million of the portfolio was classified
as held to maturity. The net unrealized gain on securities classified as available
for sale as of March 31, 2008 was $18.2 million compared to an unrealized gain of
$15.9 million as of December 31, 2007. The appreciation in the market value of securities
available for sale was primarily due to fluctuations in market interest rates during
the period. Management has performed a review of all investments with unrealized
losses and determined that none of these investments had other-than-temporary impairment.
The investment portfolio does not have exposure to sub-prime lending, does not include
collateralized debt obligations or structured investment vehicles. The Company does
not own or plan on investing in securities backed by sub-prime mortgage collateral.
29
Lending Activities
Table 7: Loan Portfolio | ||||||||||||||||
March 31, 2008 | December 31, 2007 | |||||||||||||||
Percent | Percent | |||||||||||||||
(Dollars in thousands) | Amount | of Total | Amount | of Total | ||||||||||||
Residential real estate | $ | 2,391,755 | 50.3 | % | $ | 2,360,921 | 49.9 | % | ||||||||
Commercial real estate | 989,961 | 20.8 | 947,185 | 20.1 | ||||||||||||
Residential real estate construction | 22,547 | 0.5 | 29,023 | 0.6 | ||||||||||||
Commercial real estate construction | 208,142 | 4.4 | 247,428 | 5.2 | ||||||||||||
Commercial business | 454,463 | 9.5 | 457,745 | 9.7 | ||||||||||||
Home equity and equity lines of credit | 662,395 | 13.9 | 652,107 | 13.8 | ||||||||||||
Other consumer | 29,691 | 0.6 | 33,560 | 0.7 | ||||||||||||
Total loans |
$ | 4,758,954 | 100.0 | % | $ | 4,727,969 | 100.0 | % | ||||||||
As shown in Table 7, gross loans were $4.76
billion, up $31.0 million, or 0.7%, at March 31, 2008 from year-end 2007. The Company
experienced an increase in most loan categories due to organic loan growth.
Asset Quality
30
Table 8: Nonperforming Assets | |||||||
March 31, | December 31, | ||||||
(Dollars in thousands) | 2008 | 2007 | |||||
Nonaccruing loans (1) | |||||||
Real estate loans |
|||||||
Residential (one- to four- family) |
$ | 7,068 | $ | 4,837 | |||
Commercial |
5,304 | 5,796 | |||||
Total real estate loans |
12,372 | 10,633 | |||||
Commercial business |
5,497 | 4,912 | |||||
Consumer loans |
|||||||
Home equity and equity lines of credit |
907 | 606 | |||||
Other consumer |
213 | 235 | |||||
Total consumer loans |
1,120 | 841 | |||||
Total Nonaccruing loans |
18,989 | 16,386 | |||||
Real Estate Owned | 557 | 897 | |||||
Total nonperforming assets |
$ | 19,546 | $ | 17,283 | |||
Total nonperforming loans as a percentage of total loans (2) |
0.40 | 0.35 | |||||
Total nonperforming assets as a percentage of total assets |
0.24 | 0.21 |
Allowance For Loan Losses
As displayed in Table 9 below, during the three months ended March 31, 2008,
the Company recorded net charge-offs of $99,000, compared to net charge-offs of
$217,000 for the three months ended March 31, 2007. Management believes that the
allowance for loan losses is adequate and consistent with asset quality and delinquency
indicators. The Company had a loan loss allowance of $45.4 million and $43.8 million
at March 31, 2008 and December 31, 2007, respectively.
Table 9: Schedule of Allowance for Loan Losses | ||||||||
At or For the Three Months Ended March 31, | ||||||||
(Dollars in thousands) | 2008 | 2007 | ||||||
Balance at beginning of period | $ | 43,813 | $ | 37,408 | ||||
Net allowances gained through acquisition | - | 3,739 | ||||||
Provision for loan losses | 1,700 | 1,000 | ||||||
Charge-offs | ||||||||
Residential and commercial real estate loans |
51 | 2 | ||||||
Commercial business loans |
270 | 538 | ||||||
Consumer loans |
146 | 112 | ||||||
Total charge-offs |
467 | 652 | ||||||
Recoveries | ||||||||
Residential and commercial real estate loans |
15 | 250 | ||||||
Commercial business loans |
320 | 53 | ||||||
Consumer loans |
33 | 132 | ||||||
Total recoveries |
368 | 435 | ||||||
Net charge-offs | 99 | 217 | ||||||
Balance at end of period | $ | 45,414 | $ | 41,930 | ||||
Net charge-offs to average loans | 0.01 | % | 0.02 | % | ||||
Allowance for loan losses to total loans | 0.95 | 0.93 | ||||||
Allowance for loan losses to nonperforming loans | 239.16 | 226.62 | ||||||
Net charge-offs to allowance for loan losses | 0.22 | 0.52 | ||||||
Total recoveries to total charge-offs | 78.80 | 66.72 |
31
Goodwill and Identifiable Intangible Assets
At March 31, 2008, the Company had intangible assets
of $579.1 million, a decrease of $5.4 million, from $584.5 million at December 31,
2007. The decrease is due to year-to-date amortization expense for core deposit
and customer relationships as well as for the reduction of unrecognized tax benefits
for tax positions taken in prior years related to acquisitions. In accordance with
SFAS No. 141, all assets acquired and liabilities assumed are recorded based on
their fair values on the acquisition date.
Identifiable
intangible assets are amortized on a straight-line or accelerated basis, over their
estimated lives. Management assesses the recoverability of intangible assets subject
to amortization whenever events or changes in circumstances indicate that their
carrying value may not be recoverable. If the carrying amount exceeds fair value,
an impairment charge is recorded to income. Goodwill is not amortized, but instead
is reviewed for impairment on an annual basis. The Company performed its annual
test for goodwill impairment during the first quarter of the year, and no impairment
was recorded. No events or circumstances subsequent to those evaluations indicate
that the carrying value of the Companys goodwill may not be recoverable.
Sources of Funds
Cash flows
from deposits, loan and mortgage-backed securities repayments, securities sales
proceeds and maturities, borrowings and earnings are the primary sources of the
Companys funds available for use in its lending and investment activities
and in meeting its operational needs. While scheduled loan and securities repayments
are a relatively stable source of funds, deposit flows and loan and investment security
prepayments are influenced by prevailing interest rates and local and economic conditions
and are inherently uncertain. The borrowings primarily include FHLB advances and
repurchase agreement borrowings. See Note 10 of Notes to Consolidated Financial
Statements contained elsewhere within this Report for further borrowings information.
The Company attempts to control the flow of funds in its deposit accounts according
to its need for funds and the cost of alternative sources of funding. A Loan and
Deposit Pricing Committee meets weekly to determine pricing and marketing initiatives.
It influences the flow of funds primarily by the pricing of deposits, which is affected
to a large extent by competitive factors in its market area and asset/liability
management strategies.
Deposits
The Company
receives retail and commercial deposits through its main office and 88 other banking
offices throughout Connecticut (77 locations) and Massachusetts (12 locations).
Customer deposits generated through the NewAlliance banking network are the largest
source of funds used to support asset growth.
Table 10. Deposits | |||||||
(In thousands) | March 31, 2008 |
December 31, 2007 |
|||||
Savings | $ | 1,126,787 | $ | 941,051 | |||
Money market | 494,845 | 492,042 | |||||
NOW | 405,669 | 401,097 | |||||
Demand | 484,380 | 477,408 | |||||
Time | 1,745,933 | 2,062,067 | |||||
Total deposits |
$ | 4,257,614 | $ | 4,373,665 | |||
As displayed in Table 10, deposits decreased $116.1 million compared to December 31, 2007. The Companys strategy was to reduce rates paid on interest bearing deposits, particularly on time deposits, in order to stabilize the net interest margin and increase core deposits. The strategy resulted in our net interest margin increasing seven basis points from December 31, 2007. However, deposit outflow in the quarter did occur due to the reduction in the average rate paid on deposits. Many of our peers did not reduce their rates as quickly, therefore, a portion of maturing time deposits was lost to competitors. Partially offsetting the decrease in time deposit accounts was an increase in core deposits of approximately $200.0 million, as the Company was able to retain some of the attrition in time deposit accounts and established new customer accounts and relationships through targeted product promotions. However, if deposit outflows continue the Company may increase the rate paid on interest-bearing deposits to stem the outflows which could have a negative impact on the net interest margin.
Borrowings
NewAlliance
also uses various types of short-term and long-term borrowings in meeting funding
needs. While customer deposits remain the primary source for funding loan originations,
management uses short-term and long-term borrowings as a supplementary funding source
for loan growth and other liquidity needs when the cost of these funds are favorable
compared to alternative funding, including deposits.
32
The following table summaries the Companys recorded borrowings at March 31, 2008.
Table 11. Borrowings | |||||||
March 31, | December 31, | ||||||
(In thousands) | 2008 | 2007 | |||||
FHLB advances (1) | $ | 2,211,038 | $ | 2,136,965 | |||
Repurchase agreements | 187,512 | 192,145 | |||||
Mortgage loans payable | 1,425 | 1,459 | |||||
Junior subordinated debentures issued to affiliated trusts (2) | 24,885 | 24,935 | |||||
Total borrowings |
$ | 2,424,860 | $ | 2,355,504 | |||
Borrowings were $2.42 billion at March 31, 2008, an increase of $69.4 million from the balance recorded at December 31, 2007, and was mainly in FHLB advances. This increase in FHLB advances was primarily due to funding loan growth and offsetting deposit outflows while managing interest rate risk and liquidity. At March 31, 2008, the majority of the Companys outstanding FHLB advances were at fixed rates, while only $15.0 million had floating rates.
Stockholders Equity
Total stockholders equity equaled $1.41 billion at March 31, 2008, $7.7 million higher than the
balance at December 31, 2007. The increase consisted primarily of current year earnings
of $12.9 million and stock option and restricted stock expense of $3.0 million.
These increases were partially offset by the $6.6 million payment of cash dividends
declared on our common stock during the three months ended March 31, 2008 and our
repurchase of 147,913 shares of our common stock for $1.7 million. For information
regarding our compliance with applicable capital requirements, see Liquidity
and Capital Position below.
Dividends declared in the first quarter were
$0.065 per share compared to $0.06 per share for the same period last year. On April
17, 2008, we declared a $0.07 per share cash dividend payable on May 16, 2008 to
shareholders of record on May 6, 2008. Book value per share amounted to $13.03 and
$12.93 at March 31, 2008 and December 31, 2007, respectively, and tangible book
value amounted to $7.70 and $7.56 at the same dates, respectively.
Management Of Market And Interest Rate Risk
General
Market risk
is the exposure to losses resulting from changes in interest rates, foreign currency
exchange rates, commodity prices and equity prices. The Company has no foreign currency
or commodity price risk. Credit risk related to investment securities is low as
all are investment grade or have government guarantees. There is no sub-prime mortgage
exposure in the investment portfolio. The chief market risk factor affecting financial
condition and operating results is interest rate risk. Interest rate risk is the
exposure of current and future earnings and capital arising from adverse movements
in interest rates and spreads. This risk is managed by periodic evaluation of the
interest rate risk inherent in certain balance sheet accounts, determination of
the level of risk considered appropriate given the Companys capital and liquidity
requirements, business strategy, performance objectives and operating environment
and maintenance of such risks within guidelines approved by the Board of Directors.
Through such management, the Company seeks to reduce the vulnerability of its net
earnings to changes in interest rates. The Asset/Liability Committee, comprised
of several senior executives, is responsible for managing interest rate risk. On
a quarterly basis, the Board of Directors reviews the Companys gap position
and interest rate sensitivity exposure described below and Asset/Liability Committee
minutes detailing the Companys activities and strategies, the effect of those
strategies on the Companys operating results, interest rate risk position
and the effect changes in interest rates would have on the Companys net interest
income. The extent of movement of interest rates is an uncertainty that could have
a negative impact on earnings.
33
The principal strategies used to manage
interest rate risk include (i) emphasizing the origination, purchase and retention
of adjustable rate loans, and the origination and purchase of loans with maturities
matched with those of the deposits and borrowings funding the loans, (ii) investing
in debt securities with relatively short maturities and/or average lives and (iii)
classifying a significant portion of its investment portfolio as available for sale
so as to provide sufficient flexibility in liquidity management. By its strategy
of limiting the Banks risk to rising interest rates, the Bank is also limiting
the benefit of falling interest rates.
The Company employs two approaches to
interest rate risk measurement; gap analysis and income simulation analysis.
Gap Analysis
The matching of assets and liabilities may be analyzed
by examining the extent to which such assets and liabilities are interest
rate sensitive and by monitoring a banks interest rate sensitivity gap. An asset or liability is deemed to be interest rate sensitive within
a specific time period if it will mature or reprice within that time period. The
interest rate sensitivity gap is defined as the difference between the
amount of interest-earning assets maturing or repricing within a specific time period
and the amount of interest-bearing liabilities maturing or repricing within that
same time period. At March 31, 2008, the Companys cumulative one-year interest
rate gap (which is the difference between the amount of interest-earning assets
maturing or repricing within one year and interest-bearing liabilities maturing
or repricing within one year), was negative $31.4 million, or negative 0.38% of
total assets. The Banks approved policy limit is plus or minus 20%. A gap
is considered positive when the amount of interest rate sensitive assets exceeds
the amount of interest rate sensitive liabilities. A gap is considered negative
when the amount of interest rate sensitive liabilities exceeds the amount of interest
rate sensitive assets. During a period of rising interest rates, a negative gap
would tend to adversely affect net interest income while a positive gap would tend
to result in an increase in net interest income. Conversely, during a period of
falling interest rates, a negative gap would tend to result in an increase in net
interest income while a positive gap would tend to adversely affect net interest
income.
Income Simulation Analysis
Income simulation analysis
considers the maturity and repricing characteristics of assets and liabilities,
as well as the relative sensitivities of these balance sheet components over a range
of interest rate scenarios. Tested scenarios include instantaneous rate shocks,
rate ramps over a six-month or one-year period, static rates, non-parallel shifts
in the yield curve and a forward rate scenario. The simulation analysis is used
to measure the exposure of net interest income to changes in interest rates over
a specified time horizon, usually a three-year period. Simulation analysis involves
projecting future balance sheet structure and interest income and expense under
the various rate scenarios. The Companys internal guidelines on interest rate
risk specify that for a range of interest rate scenarios, the estimated net interest
margin over the next 12 months should decline by less than 12% as compared to the
forecasted net interest margin in the base case scenario. However, in practice,
interest rate risk is managed well within these 12% guidelines.
For the base
case rate scenario the flat yield curve as of March 31, 2008 was utilized. This
yield curve was utilized due to the recent excessive volatility in the rates markets.
As of March 31, 2008, the Companys estimated exposure as a percentage of estimated
net interest income for the next twelve-month period as compared to the forecasted
net interest income in the base case scenario are as follows:
Percentage
change in estimated net interest margin over twelve months |
|||
200 basis point twelve month ramp upwards in interest rates | 2.38% | ||
100 basis point twelve month ramp downwards in interest rates | -1.96% | ||
As of March 31, 2008, a downward twelve
month ramp of 100 basis points was a realistic representation of the risk of falling
rates as the Federal Reserve was reducing rates to increase market liquidity. For
an increase in rates, an upward twelve month ramp of 200 basis points is also a
relevant representation of potential risk given the possibility of the economy rebounding
due to the recent reductions in the federal funds rate and the potential for the
government stimulus package to stimulate demand in the second half of the year.
Based on the scenarios above, net interest income would increase slightly in the
12-month period after an upward movement in rates, and would decrease slightly after
a downward movement in rates. Computation of prospective effects of hypothetical
interest rate changes are based on a number of assumptions including the level of
market interest rates, the degree to which non-maturity deposits react to changes
in market rates, the expected prepayment rates on loans and investments, the degree
to which early withdrawals occur on time deposits and other deposit flows. As a
result, these computations should not be relied upon as
34
indicative of actual results. Further, the computations do not reflect any actions that management may undertake in response to changes in interest rates.
Liquidity and Capital Position
Liquidity
is the ability to meet current and future short-term financial obligations. The
Company further defines liquidity as the ability to respond to the needs of depositors
and borrowers as well as maintaining the flexibility to take advantage of investment
opportunities. The Companys primary sources of funds consist of deposit inflows,
loan repayments and sales, maturities, paydowns and sales of investment and mortgage-backed
securities, borrowings from the Federal Home Loan Bank and repurchase agreements.
The Company has expanded its use of borrowings from the Federal Home Loan Bank
to fund loan growth while managing interest rate risk and liquidity. At March 31,
2008, total borrowings from the Federal Home Loan Bank amounted to $2.20 billion,
exclusive of $8.6 million in purchase accounting adjustments, and the Company had
the immediate capacity to increase that total to $2.39 billion. Additional borrowing
capacity of approximately $797.4 million would be readily available by pledging
eligible investment securities as collateral. Depending on market conditions and
the Companys liquidity and gap position, the Company may continue to borrow
from the Federal Home Loan Bank or initiate borrowings through the repurchase agreement
market. At March 31, 2008 the Companys repurchase agreement lines of credit
totaled $125.0 million, $100.0 million of which was available on that date.
The Companys most liquid assets are cash and due from banks, short-term investments
and debt securities. The levels of these assets are dependent on the Companys
operating, financing, lending and investment activities during any given period.
At March 31, 2008, cash and due from banks, short-term investments and debt securities
maturing within one year amounted to $308.7 million, or 3.77% of total assets.
NewAlliances main source of liquidity at the parent company level is dividends
from NewAlliance Bank. The main uses of liquidity are payments of dividends to common
stockholders, repurchase of NewAlliances common stock, and the payment of
principal and interest to holders of trust preferred securities.
Management believes
that the cash and due from banks, short term investments and debt securities maturing
within one year, coupled with the borrowing line at the Federal Home Loan Bank and
the available repurchase agreement lines at selected broker dealers, provide for
sufficient liquidity to meet its operating needs.
At March 31, 2008, the Company
had commitments to originate loans, unused outstanding lines of credit and standby
letters of credit totaling $886.0 million. Management anticipates that it will have
sufficient funds available to meet its current loan commitments. Time deposits maturing
within one year from March 31, 2008 amount to $1.57 billion.
At March 31, 2008,
the Companys Tier 1 leverage ratio, a primary measure of regulatory capital
was $845.1 million, or 11.2%, which is above the threshold level of $377.3 million,
or 5% to be considered well-capitalized. The Tier 1 risk-based capital
ratio stood at 18.9% and the Total risk-based capital ratio stood at 20.0%. The
Bank also exceeded all of its regulatory capital requirements with leverage capital
of $688.9 million, or 9.1% of average assets, which is above the required level
of $301.1 million or 4.0%. The Tier 1 risk-based capital ratio was 15.5% and the
Total risk-based capital ratio was 16.6%. These ratios qualify the Bank as a well
capitalized institution under federal capital guidelines.
Item 4. Controls and Procedures
The Companys management, including our Chief Executive Officer and Chief Financial Officer,
has evaluated the effectiveness of our disclosure controls and procedures (as defined
in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act) as of March 31, 2008.
Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures are effective.
Disclosure
controls and procedures are our controls and other procedures that are designed
to ensure that the information required to be disclosed by us in our reports filed
or submitted under the Securities Exchange Act of 1934 (the Exchange Act)
is recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commissions rules and forms. Disclosure controls
and procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by us in our reports filed under
the Exchange Act is accumulated and communicated to our
35
management,
including the principal executive officer and principal financial officer, as appropriate
to allow timely decisions regarding required disclosure in the first quarter 2008.
In addition, based on that evaluation, no change in the Companys internal
control over financial reporting occurred during the quarter ended March 31, 2008
that has materially affected, or is reasonably likely to materially affect, the
Companys internal control over financial reporting.
Item 4T. Controls and Procedures
Not applicable.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We are not
involved in any pending legal proceedings other than routine legal proceedings occurring
in the ordinary course of business. We believe that those routine proceedings involve,
in the aggregate, amounts which are immaterial to the financial condition and results
of operations of NewAlliance Bancshares, Inc.
Item 1A. Risk Factors
An investment
in our common stock involves certain risks inherent to our business. The material
risks and uncertainties that management believes affect the Company are described
below. To understand these risks and to evaluate an investment in our common stock,
you should read this entire report, including the following risk factors.
If
any of the following risks actually occur, the Companys financial condition
and results of operations could be materially and adversely affected. If this were
to happen, the value of the Companys common stock could decline significantly.
Changes in Interest Rates and Spreads
Could Have an Impact on Earnings and Results of Operations, Which Could Have a Negative
Impact on The Value of NewAlliance Stock.
NewAlliances earnings and financial condition are dependent to a large degree upon net
interest income, which is the difference between interest earned from loans and
investments and interest paid on deposits and borrowings. The narrowing of interest
rate spreads, meaning the difference between interest rates earned on loans and
investments and the interest rates paid on deposits and borrowings, could adversely
affect NewAlliances earnings and financial condition. The Company cannot predict
with certainty or control changes in interest rates. Regional and local economic
conditions and the policies of regulatory authorities, including monetary policies
of the Federal Reserve Board, affect interest income and interest expense. The Company
has ongoing policies and procedures designed to manage the risks associated with
changes in market interest rates.
However, changes in interest rates still may
have an adverse effect on NewAlliances profitability. For example, high interest
rates could also affect the amount of loans that we originate, because higher rates
could cause customers to apply for fewer mortgages, or cause depositors to shift
funds from accounts that have a comparatively lower cost, to accounts with a higher
cost or experience customer attrition due to competitor pricing. If the cost of
interest-bearing deposits increases at a rate greater than the yields on interest-earning
assets increase, net interest income will be negatively affected. Changes in the
asset and liability mix may also affect net interest income. Similarly, lower interest
rates cause higher yielding assets to prepay and floating or adjustable rate assets
to reset to lower rates. If the Bank is not able to reduce its funding costs sufficiently,
due to either competitive factors or the maturity schedule of existing liabilities,
then the Banks net interest margin will decline.
Credit Market Conditions May Impact NewAlliances Investments
Significant
credit market anomalies may impact the valuation and liquidity of the Companys
investment securities. The problems of numerous primary security dealers have reduced
market liquidity, increased normal bid-asked spreads and increased the uncertainty
of market participants. Such illiquidity could reduce the market value of the Companys investments, even those with no apparent credit exposure.
NewAlliances Business Strategy
of Growth Through Acquisitions Could Have an Impact on Earnings and Results of Operations
That May Negatively Impact the Value of NewAlliance Stock.
In recent
years, NewAlliance has focused, in part, on acquisitions. Over the past four years,
the Company has acquired four banking institutions, a non-depository trust company
and a registered investment advisory firm. From time to time in the ordinary course
of business, the Company engages in preliminary discussions with potential acquisition
targets. As of the date of this filing, there are no binding or definitive agreements,
plans, arrangements, or understandings for such acquisitions by the Company. Although
our business strategy includes both internal expansion and acquisitions, there can
be no assurance that, in the future, we will successfully identify suitable acquisition
candidates, complete acquisitions successfully, integrate acquired operations into
our existing operations or expand into new markets. Further, there can be no assurance
that acquisitions will not
36
have an adverse effect upon our operating results while the operations of the acquired businesses are being integrated into our operations. In addition, once integrated, acquired operations may not achieve levels of profitability comparable to those achieved by our existing operations, or otherwise perform as expected. Further, transaction-related expenses may adversely affect our earnings. These adverse effects on our earnings and results of operations may have a negative impact on the value of our stock.
If The Goodwill That
The Company Has Recorded in Connection With Its Acquisitions Becomes Impaired, It
Could Have a Negative Impact on The Companys Profitability.
Applicable
accounting standards require that the purchase method of accounting be used for
all business combinations. Under purchase accounting, if the purchase price of an
acquired company exceeds the fair value of the companys net assets, the excess
is carried on the acquirers balance sheet as goodwill. At December 31, 2007,
the Company had approximately $531.2 million of goodwill on its balance sheet. Companies
must evaluate goodwill for impairment at least annually. Write-downs of the amount
of any impairment, if necessary, are to be charged to the results of operations
in the period in which the impairment occurs. There can be no assurance that future
evaluations of goodwill will not result in findings of impairment and related write-downs,
which may have a material adverse effect on NewAlliances financial conditions
and results of operations.
NewAlliance May Experience Higher Levels of Loan
Losses Due to Recent Growth.
NewAlliances growth strategy depends on
generating an increasing level of loans to produce an acceptable return to our stockholders.
We will also need to accomplish this loan growth while maintaining low loan losses
in our portfolio. We expect growth to occur in markets that are relatively new to
us, including central and western Massachusetts through our recent acquisition of
Westbank. As such, NewAlliances allowance for loan losses may need to be increased,
or may be deemed insufficient by various regulatory agencies. Such agencies may
require the Bank to recognize an increase to the allowance for loan losses. Any
increases in the allowance for loan losses will result in a decrease in net income
and, possibly capital, and may have a material adverse effect on NewAlliances
financial condition and results of operations. See the sections titled Allowance
for Loan Losses and Classification of Assets and Loan Review in
Item 7, Managements Discussion and Analysis of Financial Condition and Results
of Operation, located in the Companys most recent Annual Report on Form 10-K
for further discussion related to the process for determining the appropriate level
of the allowance for loan losses.
NewAlliance May Experience Higher Levels
of Loan Losses Due to Economic Conditions.
NewAlliances business is
subject to periodic fluctuations based on national and local economic conditions.
These fluctuations are not predictable, cannot be controlled and may have a material
adverse impact on the Companys operations and financial condition. For example,
recent declines in housing activity including declines in building permits, housing
starts and home prices may make it more difficult for our borrowers to sell their
homes or refinance their debt. Sales may also slow, which could strain the resources
of real estate developers and builders. Many analysts are now predicting the U.S.
Economy is in or will experience a recession in the near term. This could affect
employment levels and the ability of our borrowers to service their debt. The Bank
may suffer higher loan losses as a result of these factors and the resulting impact
on our borrowers.
Strong Competition Within NewAlliances Market Areas
May Limit Growth and Profitability.
Competition in the banking and financial
services industry is intense. In our market areas, we compete with commercial banks,
savings institutions, mortgage brokerage firms, credit unions, finance companies,
mutual funds, insurance companies, and brokerage and investment banking firms operating
locally and elsewhere. As we grow, we will be expanding into market areas where
we may not be as well known as other institutions that have been operating in those
areas for some time. In addition, regional, super regional and national interstate
banking institutions have become increasingly active in our market areas. Many of
these competitors, in particular the regional, super regional and national institutions,
have substantially greater resources and lending limits than we have and may offer
certain services that we do not or cannot efficiently provide. Our profitability
depends upon our continued ability to successfully compete in our market areas.
The greater resources and deposit and loan products offered by some of our competitors
may limit our ability to grow profitably.
NewAlliance May Not Pay You Dividends
if NewAlliance is Not Able to Receive Dividends From Its Subsidiary, NewAlliance
Bank.
Cash dividends from NewAlliance Bank and our liquid assets are our
principal sources of funds for paying cash dividends on our common stock. Unless
we receive dividends from NewAlliance Bank or choose to use our liquid assets, we
may not be able to pay dividends. NewAlliance Banks ability to pay us dividends
is subject to its ability to earn net income and to meet certain regulatory requirements.
NewAlliance is Subject To Extensive Government Regulation and Supervision
NewAlliance, primarily through NewAlliance Bank and certain non-bank subsidiaries,
is subject to extensive federal and state regulation and supervision. Banking regulations
are primarily intended to protect customers, depositors funds, federal deposit
insurance funds and the banking system as a whole, not stockholders. These regulations
affect the Companys lending practices, capital structure, investment practices,
dividend policy and growth, among other things. Congress and federal regulatory
37
agencies continually review banking laws, regulations and policies for possible changes. Changes to statutes, regulations or regulatory policies, including changes in interpretation or implementation of statutes, regulations or policies, could affect the Company in substantial and unpredictable ways. Such changes could subject the Company to additional costs, limit the types of financial services and products we may offer and/or increase the ability of non-banks to offer competing financial services and products, among other things. Failure to comply with laws, regulations or policies could result in sanctions by regulatory agencies, civil money penalties and/or reputation damage, which could have a material adverse effect on the Companys business, financial condition and results of operations. While NewAlliance has policies and procedures designed to prevent any such violations, there can be no assurance that such violations will not occur. See the section captioned Supervision and Regulation in Item 1. of the Companys most recent annual report on Form 10-K for further information.
NewAlliance May Not Be Able To Attract and
Retain Skilled People
NewAlliances success depends, in large part,
on its ability to attract and retain key people. Competition for the best people
in most activities engaged in by the Company can be intense and we may not be able
to hire people or to retain them. The unexpected loss of services of one or more
of the Companys key personnel could have a material adverse impact on the
business because of their skills, knowledge of the market, years of industry experience
and the difficulty of promptly finding qualified replacement personnel.
NewAlliance
Continually Encounters Technological Change
The financial services industry
is continually undergoing rapid technological change with frequent introductions
of new technology-driven products and services. The effective use of technology
can increase efficiency and enable financial institutions to better serve customers
and to reduce costs. However, some new technologies needed to compete effectively
result in incremental operating costs. The Companys future success depends,
in part, upon its ability to address the needs of its customers by using technology
to provide products and services that will satisfy customer demands, as well as
to create additional efficiencies in operations. Many of the Companys competitors
have substantially greater resources to invest in technological improvements. The
Company may not be able to effectively implement new technology-driven products
and services or be successful in marketing these products and services to its customers.
Failure to successfully keep pace with technological change affecting the financial
services industry could have a material adverse impact on the Companys business
and, in turn, its financial condition and results of operations.
NewAlliances Controls and Procedures May Fail or Be Circumvented
Management regularly
reviews and updates the Companys internal controls, disclosure controls and
procedures, and corporate governance policies and procedures. Any system of controls,
however well designed and operated, is based in part on certain assumptions and
can provide only reasonable, not absolute, assurances that the objectives of the
system are met. Any failure or circumvention of the controls and procedures or failure
to comply with regulations related to controls and procedures could have a material
adverse effect on the Companys business, results of operations and financial
condition.
Customer Information May be Obtained and Used Fraudulently
Risk of theft of customer information resulting from security breaches by third
parties exposes the Company to reputation risk and potential monetary loss. The
Company has exposure to fraudulent use of our customers personal information
resulting from its general business operations and through customer use of financial
instruments, such as debit cards. If a breach in security does occur in the marketplace
and the financial data of our customers is compromised, the Company will react as
quickly as possible to protect customer accounts and limit potential losses to the
Company.
NewAlliances Stock Price Can be Volatile.
NewAlliances stock price can fluctuate widely in response to a variety of factors including:
| actual or anticipated variations in quarterly operating results; |
|
| recommendations by securities analysts; |
|
| new technology used, or services offered, by competitors; |
|
| significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving the Company or the Companys competitors; |
|
| failure to integrate acquisitions or realize anticipated benefits from acquisitions; |
|
| operating and stock price performance of other companies that investors deem comparable to NewAlliance; |
|
| news reports relating to trends, concerns and other issues in the financial services industry; |
|
| changes in government regulations; and |
|
| geopolitical conditions such as acts or threats of terrorism or military conflicts. |
General market fluctuations, industry factors and general economic and political conditions and events, such as economic slowdowns or recessions, interest rate changes, credit loss trends or currency fluctuations could also cause NewAlliances stock price to decrease regardless of the Companys operating results.
38
(a) None.
(b) Not applicable.
(c) The following table sets forth information about the Companys stock repurchases for the three months ended March 31, 2008.
Issuer Purchases of Equity Securities
(a) Total Number of Shares Purchased |
(b) Average Price Paid per Share (includes commission) |
(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | (d) Maximum Number (or Approximate Dollar Value) of Shares that may Yet Be Purchased Under the Plans or Programs | |||||
Period | ||||||||
January 1-31, 2008 | (1) | 109,880 | $ 11.52 | 0 | 4,856,913 shares | |||
February 1-29, 2008 | 0 | $ - | 0 | 4,856,913 shares | ||||
March 1-31, 2008 | (2) | 151,344 | $ 11.38 | 147,913 | 4,709,000 shares | |||
Total | 261,224 | $ 11.44 | 147,913 |
On January 31, 2006, the Companys second stock repurchase plan was announced and provides for the repurchase of up to 10.0 million shares of common stock of the Company. There is no set expiration date for this plan.
Item 3. Defaults Upon Senior Securities |
None. |
Item 4. Submission of Matters to a Vote of Security Holders |
(a) | The Company held its annual meeting on April 17, 2008 (Annual Meeting). |
|
(b) | The following individuals were re-elected as directors for three-year terms at the Annual Meeting: Douglas K. Anderson, Roxanne J. Coady, John F. Croweak and Sheila B. Flanagan. The other continuing directors are: Carlton L. Highsmith, Robert J. Lyons, Jr., Eric A. Marziali, Julia M. McNamara, Peyton R. Patterson, Gerald B. Rosenberg, Joseph H. Rossi, Nathaniel D. Woodson and Joseph A. Zaccagnino. |
|
(c) | There were 108,741,712 shares of Common Stock eligible to be voted at the Annual Meeting and 98,400,092 shares were represented at the meeting by the holders thereof, which constituted a quorum. The items voted upon at the Annual Meeting and vote for each proposal were as follows: |
1. Election of directors for Three-Year Terms (Proposal 1) | |||||
Director | For | Withheld | |||
Douglas K. Anderson | 94,184,294 | 4,215,798 | |||
Roxanne J. Coady | 94,200,207 | 4,199,885 | |||
John F. Croweak | 94,047,590 | 4,352,502 | |||
Sheila B. Flanagan | 94,186,413 | 4,213,679 | |||
39
There were no abstentions or broker non-votes for any of the nominees.
2. Approval of the NewAlliance Bank Executive Incentive Plan (Proposal 2)
For | Against | Abstain | |||
80,907,758 | 16,102,169 | 1,390,165 | |||
3. Ratification of Appointment of PricewaterhouseCoopers, LLP as independent auditors of the Company for the fiscal year ending December 31, 2008 ( Proposal 3)
For | Against | Abstain | |||
96,885,522 | 1,053,548 | 461,022 | |||
Item 5. Other Information
None.
Item 6. Exhibits
Exhibit | |||
Number | |||
3.1 | Amended and Restated Certificate of Incorporation of NewAlliance Bancshares, Inc. Incorporated herein by reference is Exhibit 3.1 filed with the Companys Quarterly Report on Form 10-Q, filed August 13, 2004. |
||
3.2 | Amended and Restated Bylaws of NewAlliance Bancshares, Inc. |
||
4.1 | See Exhibit 3.1, Amended and Restated Certificate of Incorporation and Exhibit 3.2, Bylaws of NewAlliance Bancshares, Inc. |
||
10.1 | NewAlliance Bank Deferred Compensation Plan. Incorporated herein by reference is Exhibit 10.2 filed with the Registrants Registration Statement on Form S-1, Registration No. 333-109266, filed September 30, 2003. |
||
10.2 | Fourth Amendment to NewAlliance Bank Supplemental Executive Retirement Plan. Incorporated herein by reference is Exhibit 10.3.2 filed with Pre-Effective Amendment No. 1 to the Registrants Registration Statement on Form S-1, Registration No. 333-109266, filed December 12, 2003. |
||
10.2.1 | NewAlliance Bank 2004 Supplemental Executive Retirement Plan. Incorporated herein by reference is Exhibit 10.3.3 filed with Pre-Effective Amendment No. 1 to the Registrants Registration Statement on Form S-1, Registration No. 333-109266, filed December 12, 2003. |
||
10.3 | NewAlliance Amended and Restated Employee Stock Ownership Plan Supplemental Executive Retirement Plan. Incorporated herein by reference is Exhibit 10.3 filed with the Companys Current Report on Form 8-K, filed October 1, 2007. |
||
10.4 | The NewAlliance Bank Amended and Restated 401(k) Supplemental Executive Retirement Plan. Incorporated herein by reference is Exhibit 10.4 filed with the Companys Current Report on Form 8-K, filed October 1, 2007. |
||
10.5 | NewAlliance Bank Executive Incentive Plan. Incorporated herein by reference is Exhibit 10.5 filed with the Companys Quarterly Report on Form 10-Q, filed May 8, 2006. |
||
10.6 | Employee Severance Plan. Incorporated by reference is Exhibit 10.6 filed with the Companys Quarterly Report on Form 10-Q, filed November 8, 2007. |
||
10.7.1 | Amended and Restated Employment Agreement among NewAlliance Bancshares, Inc., NewAlliance Bank and Peyton R. Patterson, effective September 25, 2007. Incorporated herein by reference is Exhibit 10.7.1 filed with the Companys Current Report on Form 8-K, filed October 1, 2007. |
||
10.7.2 | Amended and Restated Employment Agreement among NewAlliance Bancshares, Inc., NewAlliance Bank and Merrill B. Blanksteen, effective September 25, 2007. Incorporated herein by reference is Exhibit 10.7.2 filed with the Companys Current Report on Form 8-K, filed October 1, 2007. |
||
10.7.3 | Amended and Restated Employment Agreement among NewAlliance Bancshares, Inc., NewAlliance Bank and Gail E.D. Brathwaite, effective September 25, 2007. Incorporated herein by reference is Exhibit 10.7.3 filed with the Companys Current Report on Form 8-K, filed October 1, 2007. |
||
10.7.4 | Intentionally omitted. |
||
10.7.5 | Amended and Restated Employment Agreement between NewAlliance Bank and Diane L. Wishnafski, effective September 25, 2007. Incorporated herein by reference is Exhibit 10.7.5 filed with the Companys Quarterly report on Form 10-Q, filed November 8, 2007. |
40
10.7.6 | (Intentionally deleted) |
||
10.7.7 | Amended and Restated Employment Agreement between NewAlliance Bank and J. Edward Diamond, effective September 25, 2007 Incorporated herein by reference is Exhibit 10.7.7 filed with the Companys Quarterly report on Form 10-Q, filed November 8, 2007. |
||
10.7.8 | Amended and Restated Employment Agreement between NewAlliance Bank and Donald T. Chaffee, effective September 25, 2007. Incorporated herein by reference is Exhibit 10.7.8 filed with the Companys Current Report on Form 8-K, filed October 1, 2007. |
||
10.7.9 | Employment Agreement between NewAlliance Bank and Paul A. McCraven, effective September 25, 2007. Incorporated herein by reference is Exhibit 10.7.9 filed with the Companys Current Report on Form 8-K, filed October 1, 2007. |
||
10.7.10 | Amended and Restated Employment Agreement between NewAlliance Bank and Koon-Ping Chan, effective September 25, 2007. Incorporated herein by reference is Exhibit 10.7.10 filed with the Companys Current Report on Form 8-K, filed October 1, 2007. |
||
10.8.1 | Form of Stock Option Agreement (for outside directors). Incorporated herein by reference is Exhibit 10.8.1 filed with the Companys Quarterly Report on Form 10-Q, filed August 9, 2005. |
||
10.8.2 | Form of Stock Option Agreement (for employees, including senior officers). Incorporated herein by reference is Exhibit 10.8.2 filed with the Companys Quarterly Report on Form 10-Q, filed August 9, 2005. |
||
10.9.1 | Form of Restricted Stock Award Agreement (for outside directors). Incorporated herein by reference is Exhibit 10.9.1 filed with the Companys Quarterly Report on Form 10-Q, filed August 9, 2005. |
||
10.9.2 | Form of Restricted Stock Award Agreement (for employees, including senior officers). Incorporated herein by reference is Exhibit 10.9.2 filed with the Companys Quarterly Report on Form 10-Q, filed August 9, 2005. |
||
10.10 | NewAlliance Bancshares, Inc. 2005 Long-Term Compensation Plan. Incorporated herein by reference is Exhibit 4.3 filed with the Companys Registration Statement on Form S-8, filed November 4, 2005. |
||
10.11 | Amendment Number One to the New Haven Savings Bank/NewAlliance Bank 2004 Supplemental Executive Retirement Plan. Incorporated herein by reference is Exhibit 10.11 filed with the Companys Annual Report on Form 10-K, filed March 1, 2007. |
||
10.12 | Form of Indemnification Agreement for Directors and Certain Executive Officers. Incorporated herein by reference is Exhibit 10.12 filed with the Companys Annual Report on Form 10-K, filed March 1, 2007. |
||
14 | Code of Ethics for Senior Financial Officers. Incorporated herein by reference is Exhibit 14 filed with the Companys Annual Report on Form 10-KT, filed March 30, 2004. |
||
21 | Subsidiaries of NewAlliance Bancshares, Inc. and NewAlliance Bank. Incorporated herein by reference is Exhibit 21 filed with the Companys Annual Report on Form 10-K, filed March 1, 2007. |
||
31.1 | Certification of Peyton R. Patterson pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 (filed herewith). |
||
31.2 | Certification of Merrill B. Blanksteen pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 (filed herewith). |
||
32.1 | Certification of Peyton R. Patterson pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith). |
||
32.2 | Certification of Merrill B. Blanksteen pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith). |
41
SIGNATURES | ||||
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized. |
||||
NewAlliance Bancshares, Inc. |
||||
By: | /s/ Merrill B. Blanksteen | |||
Merrill B. Blanksteen | ||||
Executive Vice President, Chief Financial Officer and Treasurer (principal financial officer) |
||||
Date | May 07, 2008 |
42