Bolstered by a strong balance sheet, positive earnings growth and excess capital, NewAlliance Bancshares is setting its sights on a potential acquisition.
On the same day late last month that the New Haven-based parent to NewAlliance Bank, which has a significant branch network in Greater Hartford, posted a 15 percent increase in third-quarter profits, the banking company’s board of directors also filed a shelf registration with the U.S. Securities and Exchange Commission.
The move allows the bank to comply with registration requirements with the SEC to sell shares or debt to the public at an undetermined time during the next two years, and is commonly used by banks to position themselves to raise capital quickly for a potential merger or acquisition.
Peyton R. Patterson, chairman and CEO of NewAlliance, said during an Oct. 28 conference call with analysts that filing the registration provides the bank with the “increased flexibility to rapidly seize opportunities as they present themselves.”
When pushed for more details on the topic, Patterson said management is looking for growth opportunities along the Amtrak corridor, through both regular acquisitions as well as deals assisted by the Federal Deposit Insurance Corp.
She said filing the shelf registration gives the bank the option to do larger transactions, or more than one transaction in a broader geographic footprint.
“There are opportunities there to build off our core franchise, whether it’s in New England or south down toward Pennsylvania,” Patterson told analysts. “We want to go into markets that are growing, and that have strong commercial demand and deposit growth potential.”
Mergers and acquisitions certainly aren’t new to NewAlliance Bank, which formed in 2004 after an initial public offering and the union between New Haven Savings Bank, The Savings Bank of Manchester and Tolland Bank.
Since that time, NewAlliance has acquired four other financial institutions including the Trust Company of Connecticut, Cornerstone Bank, Westbank Corporation and Connecticut Investment Management, boosting its assets to $8.5 billion with 87 branches in Connecticut and Massachusetts.
Frank Schiraldi, an analyst at Sandler O’Neil, a New York City-based financial advisory firm, said the bank has great capacity to make an acquisition.
He also said the bank would like to focus on an FDIC-assisted purchase, but he doesn’t know if that will be possible in the geographic area the company is looking to expand in.
Although there have been over 100 bank failures across the country this year, very few of them have occurred in the Northeast, meaning there will be fewer financial institutions available through the FDIC.
Bridgeport-based People’s United Bank has been in the market for an FDIC-assisted acquisition for months, but has not been able to find a partner to date. Schiraldi said he thinks NewAlliance will likely be looking at an old fashioned merger and acquisition deal, although those too have been a challenge in the current economic environment.
“Buyers and sellers have had a hard time reaching an agreement on prices,” said Schiraldi, adding that NewAlliance has about $400 million in excess capital. “But there are still way too many banks in the country, so mergers and acquisitions are certainly going to come back. In the short term more people are focused on FDIC type deals.”
NewAlliance has managed itself well through the recession, and its recent third-quarter net income of $12.6 million, a 15 percent increase over the prior year period, beat market expectations.
The bank also recorded its third consecutive quarter of revenue increases to $68.2 million, and saw a decline in loan delinquencies and nonperforming loans.
The bank did increase its reserves for loan losses by $433,000 in the quarter, and experienced an increase in net charge-offs of $1.1 million to $5.2 million, but the charge-off levels remain low relative to peer levels, the bank said.
“Improving operating efficiency has been a priority,” Patterson said to analysts.
“Our discipline has allowed us to capitalize on market disruption and make important investments in personnel and marketing investment.”
Paul McCraven, a bank spokesman, said NewAlliance has managed risk conservatively and responsibly in good times and bad, which has allowed them “to operate from a position of strength — both leading up to the down economic cycle, and as we all navigate through it.”
“So today, when so many banks are struggling, we remain well-capitalized and have exceptional credit quality,” McCraven said.
More importantly, NewAlliance in recent months has boosted its commercial lending capacity, aiming to take away market share from larger banks that still remain hesitant to lend.
The bank originated $358.7 million in loans for the quarter, compared to $82.5 million for the third quarter of 2008.
Commercial mortgages and commercial loan originations increased from $39 million to $92.8 million, on a linked quarter basis.
Just last week, NewAlliance announced the formation of a new asset-based lending business, NewAlliance Commercial Finance, which aims to expand the company’s lending capabilities to business customers.
