Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)

NewAlliance Bancshares, Inc. (NYSE:NAL)

Q2 2010 Earnings Conference Call

July 28, 2010 9:00 am ET

Executives

Jude Falango - VP, IR

Peyton R. Paterson - Chairman, President & CEO

Glenn MacInnes - EVP & CFO

Don Chaffee - CCO

Analysts

Frank Schiraldi - Sandler O'Neill & Partners LP

Amanda Larson - Raymond James Financial Inc.

Jason O'Donnell - Boenning & Scattergood Inc.

Christopher Nolan - Maxim Group LLC

Collyn Gilbert - Stifel Nicolaus & Co.

Gerard Cassidy - RBC Capital Markets Corp

Operator

Good morning, and welcome to the NewAlliance Bancshares second quarter 2010 earnings conference call. All participants are in a listen-only mode. (Operator Instructions) After today's presentation there will be an opportunity to ask questions. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Jude Falango, Vice President of Investor Relations. Please go ahead.

Jude Falango

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

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

Peyton R. Paterson

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

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

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

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

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

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

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

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

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

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

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

To recap, I want to emphasize how energized I am with these results. It's clear to me that the entire team at NewAlliance has rallied around our brand and our business models and I cannot be more proud of what we are accomplishing.

With that I'd like to turn it over to Glenn to provide more details on what's behind the highlight. Glenn.

Glenn MacInnes

Thank you, Peyton and good morning. We had a terrific quarter. Let me begin on slide seven which summarizes our consolidated statement of income for the second quarter and provides comparative information, prior quarter as well as prior year.

As Peyton highlighted, we earned $16.3 million or $0.16 per share in the second quarter. Our net interest margin was 3.02% for the quarter and drove a net interest income improvement of $2.1 million or 4% over linked quarter. Versus prior year, net interest income improved by $7.8 million or 16%.

Non interest income totaled $15.9 million for the quarter, up 3.2% over the linked quarter. We are encouraged by the linked quarter increase in deposit service charges, which is driven by an increase in transaction account-related charges, as well as our expansion of the account base.

With regard to non-interest expense, we had an increase of $1.4 million over prior quarter. This was primarily attributable to non-recurring items, due diligence related expenses of $500,000, and there was an increase in our short-term incentive plan by $400,000 reflecting the higher than anticipated first half of the year progress. Excluding the two items we come back to a more normalized run rate of approximately $42.5 million.

Now I'd like to provide additional color to our performance during the second quarter. Slide eight highlights revenue momentum over the last five quarters. In the second quarter, we earned a record $73.6 million in revenue, up 3.6% linked quarter and just under 13% increase over prior year. Net interest income increased by $2.1 million over linked quarter primarily as a net result of the reduction in funding cost and incremental loan volumes.

Non-interest income of $15.9 million includes a one-time gain of $2.6 million from our investment in (inaudible) base provider of payment systems for colleges and their students which launched an IPO in June. This gain was partially offset by $300,000 reduction and the fair value of other partnerships. Excluding these items, our Q1 gain of $2.6 million, our core non-interest income increased by approximately $1 million or 7% on a linked quarter basis. Adjusted for non-recurring gains in both Q1 and Q2 our revenue improved by $2.6 million or 15% on an annualized basis.

Turning to slide nine, we highlight our interest expense drivers. As you know, we have also been very focused on reducing our cost of funding through reductions in both deposits and borrowing expense. As you can see on slide nine, during the second quarter we made additional progress on both fronts. The cost of deposits as illustrated in the top chart dropped 12 basis points over prior quarter, and for the month of June was 94 basis points. We are now down by 76 basis points from prior year. Just as important, we have achieved the reduction, while continuing to grow both the total and poor balances.

As we highlight in the lower section of the page, we made significant progress on reducing our borrowing costs. At month end June; our borrowing costs were 330 basis points, representing a 40 basis point drop from prior quarter and a 74 basis point drop from prior year.

During Q2, we paid-off a $185 million in FHLB borrowings at 404 basis points, while we booked advances at $331 million at a 134 basis points. The results of these efforts coupled with additional high yielding loans are highlighted on slide 10. As you can see, we have made consecutive progress in expanding our net interest margin. In fact, the second quarter represents the fifth consecutive period of net interest margin expansion. At 3.02%, we exceeded earlier guidance.

Turning to slide 11, we highlight our efficiency ratio trends. As we have discussed with you in the past, we continue to remain focused on increasing the efficiency of our organization and keep a close eye on our operating leverage.

Our efficiency ratio was 61.1% for the quarter compared to 59.4% on a linked quarter basis and 69.7% in the same quarter prior year. Excluding the non-core items in all period our efficiency ratio would have been 60.3%, versus the prior quarter of 61.6%. This marks tremendous progress versus a year ago June when our efficiency ratio was 63.4% adjusted for the FDIC special assessments.

Keep in mind, we have improved our efficiency while entering additional lines of businesses, opening a branch and increasing our marketing initiatives in support of our new brand campaign. The operating leverage chart provides additional texture on the two key components and you would see that revenues have historically increased at a rate of twice that of expenses.

Now I would like to discuss some of our key balance sheet drivers. Slide 12 highlights our deposit growth. We continue to grow our deposit base with an increase of $82 million over prior quarter. What's more encouraging is that we have achieved this growth while significantly decreasing our cost of deposits. As you recall, earlier in the presentation I highlighted a reduction in deposit cost of 94 basis points.

As we highlight on slide 12, we are encouraged by the shift to our core deposits particularly in a context of future rise and rates. Our core deposits grew at 0.8% linked quarter and 10% over prior year. But as importantly, now make up 72% of our total deposits versus 69% in prior year.

Checking balance growth was very strong during the quarter. As Peyton noted earlier, our non-interest bearing DDA balances were up 6.5% on a linked quarter basis. When you include both DDA and NAL, total checking balances were up $54.8 million or 6% on a linked quarter basis.

We continue to remain focused on extending the average maturity of CD portfolio. As a result, our weighted average maturity now stands at 15 months versus 14 months in prior quarter and 11 months at the end of June 2009.

Slide 13 highlights the success we have had in loan originations. For the quarter, our originations totaled $535 million, up 37% linked quarter and 32% over prior year. As you see commercial originations continue to represent a larger portion of the total originations as a result of our focus on both in high yielding, well collateralized credits. In fact, commercial originations increased 16% on a linked quarter basis and represented just $40 million or 10% of the volume one year back, now represents $165 million or 31% of the total.

I would also highlight for the first time the strong growth in our asset based lending business, which had originations of $100 million for the quarter. As we have discussed in the past, these are typically high yielding loans with significant fee revenues.

Turning to slide 14, we highlight our loan portfolio balances. Clearly we are back in trend of our competitors with strong broad-based loan growth. For the second consecutive quarter we are seeing growth on our portfolio. On a linked quarter basis, the second quarter grew by $136 million or 11% annualized. With regard to the residential portfolio, our net outstandings grew $99 million over the prior quarter and we more than compensated for approximately $36 million of run off in our purchased residential portfolio.

Again, our commercial loans increased by $49 million linked quarter, up 2.9% or 12% annualized with the majority of the growth occurring in asset-based lending, which was up by $61 million linked quarter. Of course we continue to maintain our disciplined credit standards while growing the portfolio. Before going deeper into each portfolio I would like to highlight some of the trends we see in our credit management.

Slide 15 and 16 highlights the credit quality of the loan portfolio. As you likely know, NewAlliance has consistently maintained best-in-class performance standards. As illustrated on slide 15, we continue to perform at a superior level for our competitors as well as state and national averages.

Our delinquency rate for the second quarter was 172 basis points, which was down 5 basis points from prior quarter. Early stage delinquencies have been down for two consecutive months and our criticized as classified loans have declined quarter-over-quarter and that should bode well for the future trends of non-performing loans. However, we did see an increase in our loan loss provision of $700,000, primarily as a result of additional loan volume.

On slide 16, we highlight our non-performing loans as a percent of total loans. We experienced the net increase of $3.4 million over prior quarter. As we discussed, the increase occurred primarily in the residential portfolio and was substantially driven by one credit. This was offset by a drop in our construction portfolio. That being said, the rate of increase slowed dramatically in comparison to the first quarter. At 1.39% of loans, we continue to be well bellow our competitors. Notably, non-performing assets to total assets are 81 basis points and OREO stands at an extremely low level of $2.6 million, down $700,000 from March and down $1.1 million from year end.

On slide 17, we highlight the composition of our loan portfolio. For the first time you see results of our asset base funding line of business. The new line of business is up and running in the strong collateral and superior margins, outstanding for the asset base lending business totaled $69 million at quarter end.

Now let's look at the portfolio in more detail. Turning to slide 18, the residential portfolio, which is 51% of total outstanding, is one-to-four family loans; 98% are owner occupied with delinquencies of 2.3% and only 21 basis points in net credit losses for the quarter. We update our FICO and LTVs on a quarterly basis and it's highlighted the weighted average FICO is 749 and our updated LTV at 63%.

Our home equity portfolio of $688 million continues to have superior results with the delinquency rate of only 59 basis points, well below state and national averages. The net losses on the home equity portfolio were only six basis points annualized. The weighted average FICO score remain strong at 749 and the cumulative loan to value is 68%. It's important to note that the majority of our portfolio is in market and a substantial component of the outstanding are in markets where we have seen increases, in both home sales and prices.

Turning now to slide 19. Our commercial real estate portfolio continues to be one of the best performing portfolios with delinquencies of only 1.01%, a significantly low number in this industry. This portfolio continues to be well diversified and conservatively underwritten. Only 12% matures in three years, which minimizes restructuring and potential write-downs during a difficult environment. The construction of permanent piece of this portfolio was $46.9 million, and the residential development portion is now only $22 million. We have intentionally kept this portfolio small, as a matter of exposure and risk.

On slide 20, our C&I portfolio $473 million is 9.6% of our total outstanding. As you can see the portfolio continues to be well diversified. C&I delinquencies were 2.22%, net charge-offs for the quarter were 100 basis points annualized. The portfolio was well diversified, but it's one we continue to monitor closely.

Slide 21 highlights our residential development portfolio, which is relatively small at $22 million. This portfolio has a delinquency rate of 1.46% and net credit losses of 4.05% in the second quarter. We consciously stop this funding well before the housing prices in recession.

Our quarterly net charge-offs are highlighted on slide 22 and totaled 38 basis points, which is up 12 basis points from prior quarter, and six basis points from year-end. At quarter-end, our nonperforming assets stood at $68.3 million. Our allowance for loan loss was $54.9 million with the ratio to non-performing of 80.4%. With year-to-date net charge-offs of $7.8 million, we have adequate coverage of our losses.

Our investment portfolio is highlighted on slide 23. The portfolio is 97% in Treasury/Agency or AAA rated security. For the quarter, the portfolio had a yield of 3.87% and duration of 1.55 years. As you have likely seen, we did have an impairment of one whole trust-preferred that totaled $552,000 in the quarter. All other trust-preferred securities have experienced a slight increase in credit ratings. Our net unrealized gain on the investment portfolio at quarter-end was $84 million.

Lastly, on slide 24, we highlight our capital position. As you know we started this recession with ample capital and chose not to participate in part. Our Tier 1 risk-based ratio is at 19.96% and our TCE ratio is at 11.11%. Clearly this level of capital combined with our shelf registration in October will allow us to be opportunistic in expanding our franchises.

With that, I will turn it back over to Peyton.

Peyton R. Paterson

Thanks Glenn. Now I would like to make a few remarks on the local economy before providing our outlook for the remainder of the year. In terms of the economy, the Connecticut and Massachusetts economies continue to show signs of improvement with unemployment level falling for the third month in a row, with Connecticut actually falling below 9%.

Medium home prices and home sales are also continuing to pick up. In fact, NewAlliance is benefiting from this increase home sale activity. This June, 35% of our residential mortgage applications [go for home] purchases, up from 23% from prior year. We are also beginning to hear optimistic outlooks for capital spending in the business segment but we have not yet seen a significant increase in traditional C&I term loan volumes. Although new commercial real estate originations were down for the record first quarter that we had, they are still up significantly over last year and we are continuing to see high quality lending opportunities in this business segment.

While the economy as a whole it's clearly not out of the woods yet, we've seized the moment to take market share and to build our lending engines. At the same time, we remain vigilant in maintaining credit quality.

So as we look ahead, we continue to be very optimistic and encouraged about NewAlliance's future performance. Revenues and business momentum is quite strong. We are well capitalized and have excellent credit quality. And as our new branding campaign has demonstrated NewAlliance continues to steer new primary retail and commercial customers its way. These attributes will service well into the back half of 2010.

As it relates to the margin, we expect the margin to continue to improve, however at a more modest way then for the first half of the year. We will continue to reduce the cost to deposits and borrowing and will be especially focused on adding high yielding loans from our commercial and asset-based lending businesses.

With respect to non interest income, the third quarter will be all about minimizing the impact of Reg E on our deposit service charge income. Thus far we are very encouraged by our optimum results and we are seeing by our previous guidance of approximately $1.2 million impact in 2010. However, continued superior checking account acquisition is our best weapon for mitigating these effects.

As we have reiterated and Glenn underscored, we remain focused on disciplined expense control and in terms of our outlook for credit quality we remain cautiously optimistic. The continued improvement in the unemployment rate should bode well for our loan portfolio.

Lastly, growing our footprint into attractive, continuous market remains the priority and we have begun to see increased M&A opportunities. We will focus on transactions which are accretive, afford us competitive advantages but where credit quality can be maintained going forward.

With that, I'd like to thank you all for your attention and we would now be happy to answer your questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from Frank Schiraldi of Sandler O'Neill. Please go ahead.

Frank Schiraldi - Sandler O'Neill & Partners LP

I wondered if you could give us just a little bit of a further color on the loan book in terms of the growth in the asset base lending, what sort of average yield those have come in on?

Glenn MacInnes

So our average yield I think on the portfolio is probably about 7.5% to 8%, on those balances.

Don Chaffee

Additionally, I think you should be aware that the fee income generally is 30% to 35% of that revenue stream, so that should help us as well.

Frank Schiraldi - Sandler O'Neill & Partners LP

Okay. So on top on the yield there's another fee income component?

Glenn MacInnes

Yes, monitoring type fees.

Don Chaffee

Monitoring, closing, success; it's a fee relating businesses, which is one of its attractive characteristics.

Frank Schiraldi - Sandler O'Neill & Partners LP

Okay. And I am just trying to get a sense for better sense for provisioning going forward, what would be sort of, I assume if its in higher yield the reserve would be a bit higher, but what's sort of a normalized reserve on that portfolio do you think?

Don Chaffee

Well, asset based lending actually if you monitor it correctly and we set up a pretty intense effort to do the monitoring right with very, very experienced people and have some outside people tell us, that its good. You don't necessarily get the losses, because you have such a strong collateral position. However having said that, this quarter we put in our provision, most of the increase with the $500,000 provision, 75 basis points, just because we thought we had to start building it, not because we saw any loss rate now in the deals that we've done. In fact, we turned down over 80 deals. So we feel very good about it but we think its prudent to start building it, and over time, it might get up to 1, 1.25, 1.5, but at that time, it will be based on what losses we see, and we don't expect to see losses that high.

Frank Schiraldi - Sandler O'Neill & Partners LP

Okay. So we shouldn't stick back any provisioning up and above what sort of normal increase provisioning for your everyday loan growth in the quarter.

Don Chaffee

Correct.

Frank Schiraldi - Sandler O'Neill & Partners LP

Okay. And then just finally I wanted if I could ask Peyton a question on M&A. You mentioned at the end there. In terms of the deals that you've seen in an around your footprint, do those change the strategy at all in terms of where you are looking. I guess question is what is most attractive to you geographically?

Peyton R. Paterson

Well geographically, nothing is really shifted in terms of our markets. We prioritize those. We've alluded to our M-check strategy. We liked the Boston down the corner into New Jersey and Pennsylvania and of course certain pockets to New York markets are very attractive to us also.

Operator

Our next question comes from the Amanda Larson of Raymond James. Please go ahead.

Amanda Larson - Raymond James Financial Inc.

What kind of CRE you're putting on. Are you ready to or have you gotten into any previously deemphasized loan categories if the risks were on its way?

Don Chaffee

Actually Amanda, this is Don. It's been a real pleasant surprise for us to be able to go on offense. We've been able to put on CRE loans because the big guys are somewhat distracted. There are real estate funds out there that have liquidity problems that have to come back and sell good real estate loans at better than normal underwriting. To give you an example we are doing LTVs on stabilized properties that around 50 debt service coverage of 150 and extremely good yield. So the window has been open for a while. It may start to close a little bit in the future but we are putting on right now better loan quality at higher yields which is what we planned.

Amanda Larson - Raymond James Financial Inc.

Okay. And then another one on the commercial side. What's C&I utilization and is they gotten any better this quarter?

Glenn MacInnes

We're actually at utilization rate just north of say 36.5 somewhere around there.

Amanda Larson - Raymond James Financial Inc.

And is that improved from the prior quarter/

Glenn MacInnes

Well from prior quarter it's basically flat and obviously it's down from prior year quite frankly. It was in 40s prior year.

Amanda Larson - Raymond James Financial Inc.

So the C&I growth as you guys had was pure putting on new loan?

Glenn MacInnes

New volume, correct.

Amanda Larson - Raymond James Financial Inc.

Okay. And then lastly I was looking at liability side of the balance sheet, what's your outlook for the mix shift there on a long-term funding side? I saw that FHLB and other borrowings were up but client deposits were down even though you are trying to go longer on the client deposit side. So just wanted to know about the dynamics there?

Glenn MacInnes

Well our client deposits quarter-over-quarter were, I think the key driver at least with respect to deposits was a lot of focus on interest bearing deposits. And that was the key driver amounted during the quarterly increase. With respect to deposits in them I mean I think we probably have a little more room to go on that, and most of the NIM expansion or NIM improvement although it will be modest but probably come in the form of lower borrowings.

Operator

Our next question comes from Jason O'Donnell of Boenning & Scattergood. Please go ahead.

Jason O'Donnell - Boenning & Scattergood Inc.

Just wanted to go back to the expansion in the resi-mortgage portfolio, is that growth rate purely a function of increased demand for adjustable rate products or are you beginning to retain some longer term originations?

Glenn MacInnes

It's primarily adjustable rate products.

Jason O'Donnell - Boenning & Scattergood Inc.

Okay so no shift in strategy there.

Glenn MacInnes

No.

Jason O'Donnell - Boenning & Scattergood Inc.

Okay. Great. And then just real quick on the pace of mortgage banking activity, I'm just wondering kind of what your thoughts are and then how that's been pacing in June and July, and how we should be looking about at those revenues in the third quarter?

Peyton R. Paterson

Yes. Our residential mortgage pipelines remained quite strong. We have a pipeline of at least $100 million. And our forecast for the remainder of the year really would echo what we've done in the first half of the year. So, I think really continued strong demand. And as we mentioned, we've seen a nice shift in home purchases all originated in our home market.

Operator

Our next question is from Christopher Nolan of Maxim Group. Please go ahead.

Christopher Nolan - Maxim Group LLC

Peyton, on the M&A front, what sort of payback in terms of tangible book value dilution would you anticipate, would be three years, five years?

Peyton R. Paterson

I would say on average, I would stick closer to probably to five year mark.

Christopher Nolan - Maxim Group LLC

Great. And then next question possible for Don or Glenn, are there any additional partnerships investments out there where you anticipating a gain in second half of the year?

Glenn MacInnes

Well, we do have other partnerships right now. I don't think we are anticipating, nothing too substantial as far as the gain. I mean, it depends, we did participate in (inaudible) obviously and so it depends on their price going forward as well.

Christopher Nolan - Maxim Group LLC

Great. And the final question is for the leasing business. What type of assets of these loans again so they get receivables or…

Glenn MacInnes

On the asset base lending business?

Christopher Nolan - Maxim Group LLC

Yes.

Glenn MacInnes

Yes. Well, it's on the collateral, actually inventories, and receivables.

Operator

Our next question comes from Collyn Gilbert of Stifel Nicolaus. Please go ahead.

Collyn Gilbert - Stifel Nicolaus & Co.

Just another question on the asset base lending fund, was there anything in particular that led to the more significant ramp-up this quarter, is it just the function of kind of being added for a little while or anything in particular that drove the more substantial increase this quarter?

Peyton R. Paterson

Yes, we were anticipating that growth, Collyn, as we stated, we like to get this to be about 5% of our portfolio, we launched the business late four quarter last year and we are slowly as our full infrastructure was being build and hiring the picking place in the first quarter, we had anticipated the three quarter remaining in 2010 would really represent the most robust in terms of volumes and we anticipate, we are going to see that definitely on instead of third and fourth quarter, again underscoring the fact, that we really want this to be about 5% of the total.

Collyn Gilbert - Stifel Nicolaus & Co.

Okay. And then, are you expecting similar growth trends, the rate of growth in the third and fourth quarter?

Glenn MacInnes

I think, in my temper down a little, but I think we have as Don highlighted a very strong pipeline, so it's sort of somewhat the selected to us, I mean we're picking the credits we want to book right now.

Don Chaffee

Keep in mind in the beginning, we do have some low and improved in there are lot of other vendors that are out there and, so it does provide the benefit, of good demand, however having said, I am not sure, it will stay in the exact same level, because we are conservative in making sure, we have very strong, collateral and very good monitoring daily.

Collyn Gilbert - Stifel Nicolaus & Co.

And one question Peyton on M&A and I may have missed your answer I think frankly be ask this question, but are you seeing the environment around you change at all in terms of interest on behalf of the sellers, pricing expectations I mean in the last three months or so are using much of a change as it relates to discussions you may or may not be having.

Peyton R. Paterson

Yes. I would definitely say that sales to be a lot more on activity starting to emerge and that maybe a reflection of the new regulatory environment and just sellers really starting to think more seriously about it. I think pricing expectations are in a range depending on the health of the institution. But we've identified the geographies we want to be in. We have very disappointed IRR expectations and also payback. And we are going to do deals that don't undermine the credit quality of this institution.

Operator

(Operator Instructions) Our next question comes from Gerard Cassidy of RBC. Please go ahead.

Gerard Cassidy - RBC Capital Markets Corp

Regarding the asset base blending portfolio geographically is that primarily in Connecticut or where the loans coming from?

Peyton R. Paterson

It covers a multiple geographies and I would underscore that we are really about given the size of the high level of demand that we are seeing we are really focused on doing the really, really good credit. So geography is less important to us versus dealing what we believe are superior deals. So we are in states other than just Connecticut or Massachusetts.

Gerard Cassidy - RBC Capital Markets Corp

Is it just a north eastern or these is a nation wide?

Peyton R. Paterson

It's mostly east cost.

Gerard Cassidy - RBC Capital Markets Corp

Okay. On the due diligence expenses that you incurred in the quarter, I am assuming that was for some primarily work on M&A if that's true was it because deals were done away from you or is it just because you are still looking at deals in these are just the cost that you incurred?

Peyton R. Paterson

You are correct. We had about $500,000 in M&A expenses these were not for a transaction or a multiple transaction that got away from us more related to our view of the quality of the transaction and deciding not to participate.

Gerard Cassidy - RBC Capital Markets Corp

Okay, so there were transactions that may have been done that you guys just said, no thanks.

Peyton R. Paterson

I can't see, I can't comment on whether they have been done.

Gerard Cassidy - RBC Capital Markets Corp

Okay. All right. Would you emphasize something on your M&A strategy not doing a transaction that we heard credit quality so let's say for us to assume that a [snip town] type deal is in your interest?

Peyton R. Paterson

Really can't comment on that.

Gerard Cassidy - RBC Capital Markets Corp

Okay. In terms of the deterioration in the residential mortgage portfolio although it was that much in the other sectors actually improved; what are you guys seeing on the residential side in terms of deterioration is it jumbo mortgage or prime rate mortgage, I know it's other types of residential mortgages?

Don Chaffee

Actually, this is Don. In my own opinion we didn't really see deterioration, although you saw non-performing loans go up a little bit quarter-over-quarter, but it's not in the press release but will be in the Q is that not all non-performing loans are the same. When a loan goes non-performing, we actually do an impairment analysis, which looks at the collateral value versus the debt. And our reserves for [FAS 114] actually decreased by $800,000. And so that is one of the positive impacts that we had in terms of the reserve analysis. The other thing is there's been a dramatic decrease in the 30 and 60-day buckets, so that's another positive. So overall, I'm feeling pretty good about where we are.

Operator

At this time, we have no further questions. Do we have any closing remarks from our speakers today?

Peyton R. Paterson

Thank you. I'd like very much to thank everyone for joining the call. I hope you were pleased as we were with our financial results. And as I mentioned, we are very optimistic about our future and our ability to perform. So we look forward to talking with you next quarter. Thanks for joining.

Operator

Thank you. This concludes today's conference. Thank you for participating. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: NewAlliance Bancshares, Inc. Q2 2010 Earnings Call Transcript

Check out Seeking Alpha’s new Earnings Center »

This Transcript
All Transcripts