Sixteen months after its high-profile beginning, NewAlliance Bancshares has settled down to some of the more routine tasks of building its business.
Chief executive officer Peyton R. Patterson has devised a strategy centered on expanding the $6.6 billion-asset New Haven company's noninterest revenue stream and its commercial portfolio.
Also high on the agenda are deals to speed growth. Ms. Patterson said NewAlliance has given some thought to buying an asset-based lender and a leasing company, in addition to community banks.
"Last year we did something pretty splashy," she said in an interview last week. "Now we have to execute and deliver what we promised. Everybody is impatient, but nobody more than us."
NewAlliance was formed in a mutual-to-stock conversion by New Haven Savings Bank in April 2004. It used $689 million of the $1 billion it raised from investors to buy two companies, the $2.5 billion-asset Connecticut Bancshares Inc. of Manchester and the $426 million-asset Alliance Bancorp of New England in Vernon.
Since then NewAlliance has struck two significantly smaller deals, but analysts said they should have a big strategic effect. The $19.3 million acquisition of Trust Co. of Connecticut, in Hartford, which closed July 1, more than tripled assets under management, to $1.1 billion. The $48.2 million deal to buy the $231 million-asset Cornerstone Bancorp Inc. in Stamford would expand NewAlliance's operations into the affluent Fairfield County.
Cornerstone's investors approved the deal last week; it is scheduled to close Jan. 2.
Laurie Hunsicker, an analyst at Friedman, Billings, Ramsey & Co. Inc., said Monday that NewAlliance is "hitting on all cylinders." Last quarter it posted record earnings of $14.5 million.
"They are using a number of different avenues" to increase their bottom line, Ms. Hunsicker said. She ticked off its focus on higher-yielding commercial loans, the expansion of its wealth management business, and its pending entry into Fairfield County.
Buying Cornerstone would give NewAlliance six branches in Fairfield, one of the country's wealthiest counties, with a median household income above $65,200, well above the national average of $41,200.
"Fairfield County is a market we wanted to get into," Ms. Patterson said in an interview last week. "We're lending there now, but we needed branches. Cornerstone gives us a toehold."
She also said she is also interested in expanding into neighboring Westchester County, N.Y. "Westchester is a nice contiguous set of communities to Fairfield County. It represents the type of community markets that fit well with our focus."
That said, future deals are not a given, according to Ms. Patterson. If they make strategic sense and come at an affordable price, she would not hesitate to pull the trigger, but she said that she would not compromise on either point, and that she has walked away from several deals in the past year.
"I look at our capital as our most valuable corporate asset," she said. "I'm going to be very cautious with how it is deployed, because once it's gone, it's gone."
Ms. Hunsicker said Ms. Patterson demonstrated her discipline in the last two deals she negotiated; she got "a fabulous price" for Cornerstone, and the price for Trust Co. of Connecticut was fair, given the amount of assets under management it added.
Overall loan growth at NewAlliance was sluggish in the first half (about 2%). But Ms. Patterson said originations of nonresidential credits hit record levels, and the pipeline remains full. Overall deposit growth was also sluggish, but demand deposits increased 5% in the second quarter, to $451 million.
"Clearly DDA sales are the cornerstone of our deposit strategy," she said. "We hit our stride in the second quarter. … Business DDAs were up over 100%."
The acquisition of Trust Co. of Connecticut should boost noninterest income in the second half of this year and into next year, Ms. Patterson said. Expanding the wealth management business is a primary initiative, she said. "Having a wealth management … [business] is paramount to being a best-practices community bank."
NewAlliance is now eligible to begin buying back stock, creating the prospect of more earnings spread over fewer shares outstanding - something certain to please investors.
Normally companies can begin purchasing their stock a year after they convert, but regulators required NewAlliance to wait until after Cornerstone's shareholders approved that deal. NewAlliance is authorized to buy back about 10.7 million shares.
Ms. Hunsicker said she expects the buybacks, along with the other initiatives, to push the stock's price to $18 a share soon. (It was trading at $14.76 late Tuesday.)
James Ackor, an analyst at Royal Bank of Canada's RBC Capital Markets, would not provide a price target for the stock, but said he is projecting double-digit earnings growth in 2006.
Collyn Bement Gilbert, an analyst at BankAtlantic Bancorp Inc.'s Ryan Beck & Co. Inc., rated NewAlliance "outperform" in her most recent research report.
The eligibility for buybacks has sparked investor interest; on Aug. 11 NewAlliance's stock jumped 3%, to $14.77. But Mr. Ackor said acquisitions would prove far more important to the company's future than share repurchases.
"Their momentum is being derived from an acquisition strategy that appears to be working," he said. "Trust Co. of Connecticut and Cornerstone look like pretty good deals at what appear to be reasonable prices."
