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Western Alliance Bancorporation Reports Second Quarter 2019 Financial Results

Western Alliance Bancorporation (NYSE:WAL):

SECOND QUARTER 2019 FINANCIAL RESULTS

Net income

Earnings per share

Net interest margin2

Efficiency ratio

Book value per
common share

$122.9 million

$1.19

4.59%

41.5%

$27.51

CEO COMMENTARY:

Kenneth Vecchione, Chief Executive Officer, commented: “During the second quarter Western Alliance generated a record $122.9 million in net income and earnings per share of $1.19. We reached a new milestone of $25 billion in total assets as both loan and deposit growth exceeded $1 billion, representing 25% annualized growth. As our loan growth trajectory continues, asset quality remains strong and stable with net loan losses of just 0.03% for the quarter and non-performing assets to total assets ratio of 0.27%. We generated 12% annualized growth in net interest income, absorbing the 12 basis point margin impact from lower rates, from our strong balance sheet growth. We remain among the most profitable banks in our industry, with return on assets of 2.05% and return on average tangible common equity1 of 19.72%. Further, we continued our shareholder-oriented approach to capital allocation with share repurchases of $33.9 million during the quarter while our board also approved a cash dividend of $0.25 per share to be initiated during the third quarter of 2019. Our superior capital growth, evidenced by industry-leading capital levels and tangible book value per share, continues to optimally position our company for growth and value creation.”

LINKED-QUARTER BASIS

YEAR-OVER-YEAR

FINANCIAL HIGHLIGHTS:

  • Net income and earnings per share of $122.9 million and $1.19 compared to $120.8 million and $1.16, respectively
  • Net income of $122.9 million and earnings per share of $1.19, up 17.4% and 20.2%, respectively
  • Net operating revenue1 of $267.3 million, an increase of 2.9%, or $7.4 million, compared to an increase in operating non-interest expenses1 of 1.8%, or $2.0 million
  • Net operating revenue1 of $267.3 million, an increase of 12.2%, or $29.1 million, compared to an increase in operating non-interest expenses1 of 11.8%, or $12.1 million
  • Operating pre-provision net revenue1 of $152.5 million, up $5.4 million from $147.1 million
  • Operating pre-provision net revenue1 of $152.5 million, up $17.0 million from $135.5 million
  • Effective tax rate of 16.76%, compared to 17.45%
  • Effective tax rate of 16.76%, compared to 19.48%

FINANCIAL POSITION RESULTS:

  • Total loans of $19.3 billion, up $1.1 billion, or 25.0% annualized
  • Increase in total loans of $3.1 billion, or 19.3%
  • Total deposits of $21.4 billion, up $1.2 billion, or 24.4% annualized
  • Increase in total deposits of $3.4 billion, or 18.5%
  • Stockholders' equity of $2.9 billion, up $131 million
  • Increase in stockholders' equity of $460 million

LOANS AND ASSET QUALITY:

  • Nonperforming assets (nonaccrual loans and repossessed assets) to total assets of 0.27%, compared to 0.26%
  • Nonperforming assets to total assets of 0.27%, compared to 0.29%
  • Annualized net loan charge-offs to average loans outstanding of 0.03% compared to 0.03%
  • Annualized net loan charge-offs2 to average loans outstanding of 0.03%, compared to 0.07%

KEY PERFORMANCE METRICS:

  • Net interest margin of 4.59% compared to 4.71%
  • Net interest margin2 of 4.59%, compared to 4.71%
  • Return on average assets and on tangible common equity1 of 2.05% and 19.72%, compared to 2.12% and 20.49%, respectively
  • Return on average assets2 and on tangible common equity1,2 of 2.05% and 19.72%, compared to 2.02% and 20.47%, respectively
  • Tangible common equity ratio1 of 10.2%, compared to 10.3%
  • Tangible common equity ratio1 of 10.2%, compared to 9.9%
  • Tangible book value per share1, net of tax, of $24.65, an increase from $23.20
  • Tangible book value per share1, net of tax, of $24.65, an increase of 24.6% from $19.78
  • Operating efficiency ratio1 of 42.0%, compared to 42.4%
  • Operating efficiency ratio1 of 42.0%, compared to 42.1%

1

See reconciliation of Non-GAAP Financial Measures.

2

Beginning in Q1 2019, annualized performance metrics are calculated on an actual/actual basis, from a previous 30/360 basis. Prior period amounts have been restated to conform to the current presentation.

Income Statement

Net interest income was $254.7 million in the second quarter 2019, an increase of $7.3 million from $247.3 million in the first quarter 2019, and an increase of $30.6 million, or 13.6%, compared to the second quarter 2018. As acquired loans are recorded at fair value in an acquisition, purchase discounts on these acquired loans are recorded and accreted into interest income based on expected future cash flows over the life of the loans and may be accelerated upon prepayment of acquired loans. Net interest income in the second quarter 2019 includes $4.6 million of total accretion income from acquired loans, compared to $2.8 million in the first quarter 2019, and $5.1 million in the second quarter 2018.

The Company’s net interest margin in the second quarter 2019 was 4.59%, a decrease from 4.71% in both the first quarter 2019 and second quarter 2018.

Operating non-interest income was $12.6 million for the second and first quarter 2019, compared to $14.1 million for the second quarter 2018.1 The decrease in operating non-interest income from the second quarter 2018 primarily relates to a decrease in income from warrants.

Net operating revenue was $267.3 million for the second quarter 2019, an increase of $7.4 million, compared to $259.9 million for the first quarter 2019, and an increase of $29.1 million, or 12.2%, compared to $238.2 million for the second quarter 2018.1

Operating non-interest expense was $114.8 million for the second quarter 2019, compared to $112.8 million for the first quarter 2019, and $102.7 million for the second quarter 2018.1 The Company’s operating efficiency ratio1 was 42.0% for the second quarter 2019, an improvement from 42.4% in the first quarter 2019, and from 42.1% for the second quarter 2018.

Income tax expense was $24.8 million for the second quarter 2019, compared to $25.5 million for the first quarter 2019, and $25.3 million for the second quarter 2018.

Net income was $122.9 million for the second quarter 2019, an increase of $2.1 million from $120.8 million for the first quarter 2019, and an increase of $18.3 million, or 17.4%, from $104.7 million for the second quarter 2018. Earnings per share was $1.19 for the second quarter 2019, compared to $1.16 for the first quarter 2019, and $0.99 for the second quarter 2018.

The Company views its operating pre-provision net revenue ("PPNR") as a key metric for assessing the Company’s earnings power, which it defines as net operating revenue less operating non-interest expense. For the second quarter 2019, the Company’s operating PPNR was $152.5 million, up $5.4 million from $147.1 million in the first quarter 2019, and up $17.0 million from $135.5 million in the second quarter 2018.1 Non-operating income1 for the second quarter 2019 consisted of net unrealized gains on assets measured at fair value of $1.6 million. Non-operating expense1 for the second quarter 2019 consisted of a net gain on sales and valuations of repossessed and other assets of $0.6 million.

The Company had 1,806 full-time equivalent employees and 47 offices at June 30, 2019, compared to 1,773 employees and 47 offices at March 31, 2019 and June 30, 2018.

1

See reconciliation of Non-GAAP Financial Measures.

Balance Sheet

Gross loans totaled $19.3 billion at June 30, 2019, an increase of $1.1 billion from $18.1 billion at March 31, 2019, and an increase of $3.1 billion from $16.1 billion at June 30, 2018. The increase from the prior quarter was driven by an increase of $730 million in commercial and industrial loans, $381 million in CRE, non-owner occupied loans, and $119 million in residential real estate loans. These increases were partially offset by a decrease of $73 million in construction and land development loans, and $31 million in CRE, owner occupied. From June 30, 2018, loans increased across most loan types, with the largest increases in commercial and industrial loans of $1.2 billion, residential real estate loans of $1.0 billion, CRE, non-owner occupied loans of $675 million, and construction and land development loans of $232 million. These increases were partially offset by a decrease of $16 million in CRE, owner occupied loans. At June 30, 2019, the allowance for credit losses to gross loans held for investment was 0.83%, compared to 0.86% at March 31, 2019, and 0.91% at June 30, 2018. At June 30, 2019, the allowance for credit losses to total organic loans was 0.87%, compared to 0.90% at March 31, 2019, and 0.99% at June 30, 2018. The Company defines its organic loans as those loans that have not been acquired in a transaction accounted for as a business combination.

Consistent with accounting principles generally accepted in the United States ("GAAP"), the allowance for credit losses is not carried over in an acquisition because acquired loans are recorded at fair value, which discounts the loans based on expected future cash flows. Credit discounts on acquired loans are included as a reduction to gross loans. These discounts totaled $10.6 million at June 30, 2019, compared to $13.1 million at March 31, 2019, and $19.7 million at June 30, 2018.

Deposits totaled $21.4 billion at June 30, 2019, an increase of $1.2 billion from $20.2 billion at March 31, 2019, and an increase of $3.4 billion from $18.1 billion at June 30, 2018. The increase from the prior quarter was driven by an increase of $998 million in non-interest bearing demand deposits, $107 million from certificates of deposit, and $100 million from savings and money market accounts. From June 30, 2018, deposits increased across all deposit types, with the largest increases in savings and money market accounts of $1.4 billion, non-interest bearing demand deposits of $729 million, interest-bearing demand deposits of $661 million, and certificates of deposit of $533 million. Non-interest bearing deposits were $8.7 billion at June 30, 2019, compared to $7.7 billion at March 31, 2019, and $7.9 billion at June 30, 2018. Non-interest bearing deposits comprised 40.5% of total deposits at June 30, 2019, compared to 38.0% at March 31, 2019, and 43.9% at June 30, 2018. The proportion of savings and money market balances to total deposits was 36.8%, compared to 38.6% at March 31, 2019, and 35.8% at June 30, 2018. Interest-bearing demand deposits as a percentage of total deposits were 11.8% at June 30, 2019, compared to 12.4% at March 31, 2019, and 10.3% at June 30, 2018. Certificates of deposit as a percentage of total deposits were 10.9% at June 30, 2019, compared to 11.0% at March 31, 2019, and 10.0% at June 30, 2018. The Company’s ratio of loans to deposits was 89.8% at June 30, 2019, compared to 89.6% at March 31, 2019, and 89.2% at June 30, 2018.

Borrowings were zero at June 30, 2019 and March 31, 2019, compared to $75 million at June 30, 2018. The decrease in borrowings from June 30, 2018 is due to a reduction in overnight borrowings.

Qualifying debt totaled $387 million at June 30, 2019, compared to $374 million at March 31, 2019, and $361 million at June 30, 2018.

Stockholders’ equity at June 30, 2019 was $2.9 billion, compared to $2.7 billion at March 31, 2019, and $2.4 billion at June 30, 2018. The increase in stockholders' equity from March 31, 2019 and June 30, 2018 is primarily a function of net income, partially offset by share repurchases. Under the Company's common stock repurchase program, the Company is authorized to repurchase up to $250 million of its shares of common stock. During the second quarter 2019, the Company repurchased 792,688 shares of its common stock at a weighted average price of $42.82, for a total of $33.9 million. During the six months ended June 30, 2019, the Company repurchased a total of 1,733,603 shares of its common stock, representing approximately 2% of the Company's outstanding shares. Shares were repurchased at a weighted average price of $41.45, for a total of $71.9 million.

At June 30, 2019, tangible common equity, net of tax, was 10.2% of tangible assets1 and total capital was 12.9% of risk-weighted assets. The Company’s tangible book value per share1 was $24.65 at June 30, 2019, up 24.6% from June 30, 2018.

Total assets increased 6.4% to $25.3 billion at June 30, 2019, from $23.8 billion at March 31, 2019, and increased 18.5% from $21.4 billion at June 30, 2018. The increase in total assets from the prior year relates primarily to organic loan growth.

Asset Quality

The provision for credit losses was $7.0 million for the second quarter 2019, compared to $3.5 million for the first quarter 2019, and compared to $5.0 million for the second quarter 2018. Net loan charge-offs2 in the second quarter 2019 were $1.6 million, or 0.03% of average loans (annualized), compared to $1.2 million, or 0.03%, in the first quarter 2019, and $2.6 million, or 0.07%, in the second quarter 2018.

Nonaccrual loans increased $7.9 million to $51.8 million during the quarter and increased $17.8 million from June 30, 2018. Loans past due 90 days and still accruing were zero at June 30, 2019, March 31, 2019, and June 30, 2018. Loans past due 30-89 days and still accruing interest totaled $9.7 million at June 30, 2019, a decrease from $20.5 million at March 31, 2019, and an increase from $1.5 million at June 30, 2018.

Repossessed assets totaled $17.7 million at June 30, 2019 and March 31, 2019, a decrease of $9.8 million from $27.5 million at June 30, 2018. Adversely graded loans and non-performing assets totaled $399.0 million at June 30, 2019, an increase of $41.4 million from $357.6 million at March 31, 2019, and an increase of $30.5 million from $368.5 million at June 30, 2018.

The ratio of classified assets to Tier 1 capital plus the allowance for credit losses, a common regulatory measure of asset quality, was 7.8% at June 30, 2019, compared to 8.9% at March 31, 2019, and 10.1% at June 30, 2018.1

1

See reconciliation of Non-GAAP Financial Measures.

2

Beginning in Q1 2019, annualized performance metrics are calculated on an actual/actual basis, from a previous 30/360 basis. Prior period amounts have been restated to conform to the current presentation.

Segment Highlights

The Company's reportable segments are aggregated primarily based on geographic location, services offered, and markets served. The Company's regional segments, which include Arizona, Nevada, Southern California, and Northern California, provide full service banking and related services to their respective markets. The operations from the regional segments correspond to the following banking divisions: Alliance Bank of Arizona, Bank of Nevada and First Independent Bank, Torrey Pines Bank, and Bridge Bank.

The Company's National Business Lines ("NBL") segment provides specialized banking services to niche markets. The Company's NBL reportable segments include Homeowner Associations ("HOA") Services, Hotel Franchise Finance ("HFF"), Public & Nonprofit Finance, Technology & Innovation, and Other NBLs. These NBLs are managed centrally and are broader in geographic scope than our other segments, though still predominately located within our core market areas.

The Corporate & Other segment consists of the Company's investment portfolio, Corporate borrowings and other related items, income and expense items not allocated to our other reportable segments, and inter-segment eliminations.

Key management metrics for evaluating the performance of the Company's Arizona, Nevada, Southern California, Northern California, and NBL segments include loan and deposit growth, asset quality, and pre-tax income.

The regional segments reported gross loan balances of $9.5 billion at June 30, 2019, an increase of $314 million during the quarter, and an increase of $763 million during the last twelve months. The growth in loans during the quarter was driven by increases in the Arizona, Nevada, and Southern California segments, with loan growth of $283 million, $26 million, and $7 million, respectively. These increases were partially offset by a decrease of $2 million in the Northern California segment. The growth in loans during the last twelve months was also driven by increases in the Arizona, Nevada, and Southern California segments, with loan growth of $379 million, $245 million, and $229 million, respectively. These increases were partially offset by a decrease of $90 million in the Northern California segment. Total deposits for the regional segments were $14.8 billion, an increase of $711 million during the quarter, and an increase of $1.7 billion during the last twelve months. The increase in deposits during the quarter was driven by the Arizona and Nevada segments, with deposit growth of $787 million and $182 million, respectively. These increases were partially offset by a decrease of $258 million in the Southern California segment. During the last twelve months, each of the regional segments had growth in deposits. Deposit growth over the last twelve months in the Arizona, Nevada, Southern California, and Northern California segments totaled $838 million, $426 million, $233 million, and $225 million, respectively.

Pre-tax income for the regional segments was $96.9 million for the three months ended June 30, 2019, an increase of $8.5 million from the three months ended March 31, 2019, and an increase of $10.9 million from the three months ended June 30, 2018. All regional segments had increases in pre-tax income compared to the three months ended March 31, 2019. The Arizona and Nevada segments each had increases in pre-tax income of $3.0 million and the Southern and Northern California segments each had increases in pre-tax income of $1.3 million. The Nevada, Southern California, and Northern California segments had increases in pre-tax income from the three months ended June 30, 2018 of $6.1 million, $3.0 million, and $1.8 million, respectively. For the six months ended June 30, 2019, the regional segments reported total pre-tax income of $185.2 million, an increase of $13.4 million compared to the six months ended June 30, 2018. Southern California, Nevada, Northern California and Arizona each had increases of $4.7 million, $3.8 million, $3.5 million, and $1.3 million, respectively.

The NBL segments reported gross loan balances of $9.8 billion at June 30, 2019, an increase of $817 million during the quarter, and an increase of $2.3 billion during the last twelve months. The increase in loans from the prior quarter was driven by the Other NBLs, Technology & Innovation, HFF, and Public & Nonprofit Finance segments, which had loan growth of $467 million, $189 million, $91 million, and $65 million, respectively. During the last twelve months, the largest drivers of loan growth were the Other NBLs and HFF segments, with increases of $2.0 billion and $224 million, respectively. Total deposits for the NBL segments were $5.9 billion, an increase of $560 million during the quarter, and an increase of $1.4 billion during the last twelve months. The increase in deposits from the prior quarter is primarily attributable to the Technology & Innovation and HOA Services segments, which increased deposits by $449 million and $84 million, respectively. The increase of $1.4 billion during the last twelve months is a result of growth in the Technology & Innovation and HOA Services segments of $860 million and $533 million, respectively.

Pre-tax income for the NBL segments was $60.1 million for the three months ended June 30, 2019, an increase of $0.7 million from the three months ended March 31, 2019, and an increase of $11.4 million from the three months ended June 30, 2018. The increase in pre-tax income from the prior quarter relates to the Other NBLs, HFF, and HOA Services segments, which increased by $3.7 million, $0.7 million, and $0.1 million, respectively. These increases were partially offset by decreases in pre-tax income from the Technology & Innovation and Public & Nonprofit Finance segments, which had decreases of $3.8 million and $0.1 million, respectively. The drivers of the increase in pre-tax income from the same period in the prior year were the Other NBLs, HOA Services, and Technology & Innovation segments, which had increases of $5.9 million, $4.4 million, and $2.0 million, respectively. These increases were partially offset by decreases in pre-tax income for the HFF and Public & Nonprofit Finance segments, which decreased by $0.6 million and $0.3 million, respectively. Pre-tax income for the NBL segments for the six months ended June 30, 2019 totaled $119.5 million, an increase of $24.2 million compared to the six months ended June 30, 2018. The largest increases in pre-tax income compared to the six months ended June 30, 2018 were in the Technology & Innovation, HOA Services, and Other NBLs segments. These segments had increases of $9.4 million, $9.0 million, and $7.9 million, respectively. These increases were partially offset by decreases of $1.6 million and $0.5 million in the HFF and Public & Nonprofit segments.

Conference Call and Webcast

Western Alliance Bancorporation will host a conference call and live webcast to discuss its second quarter 2019 financial results at 12:00 p.m. ET on Friday, July 19, 2019. Participants may access the call by dialing 1-888-317-6003 and using passcode 0520110 or via live audio webcast using the website link https://services.choruscall.com/links/wal190719.html. The webcast is also available via the Company’s website at www.westernalliancebancorporation.com. Participants should log in at least 15 minutes early to receive instructions. The call will be recorded and made available for replay after 2:00 p.m. ET July 19th through 9:00 a.m. ET August 19th by dialing 1-877-344-7529 passcode: 10132284.

Reclassifications

Certain amounts in the Consolidated Income Statements for the prior periods have been reclassified to conform to the current presentation. The reclassifications have no effect on net income or stockholders’ equity as previously reported.

Use of Non-GAAP Financial Information

This press release contains both financial measures based on GAAP and non-GAAP based financial measures, which are used where management believes them to be helpful in understanding the Company’s results of operations or financial position. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found in this press release. These disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.

Adoption of Accounting Standards

During the first quarter 2019, the Company adopted the Accounting Standards Updates ("ASU") related to leases, which include ASU 2016-02, Leases, ASU 2018-10, Codification Improvements to Topic 842, Leases and ASU 2018-11, Leases (Topic 842) Targeted Improvements.

The amendments in ASU 2016-02 require lessees to recognize the lease assets and lease liabilities arising from operating leases in the statement of financial position, resulting in a gross up of assets and liabilities on the balance sheet. The accounting applied by a lessor is largely unchanged from that applied under previous GAAP. The Company elected to apply the package of practical expedients, which permitted the Company to forgo reassessment of 1) expired or existing contracts that may contain leases; 2) lease classification of expired or existing leases; and 3) initial direct costs for any existing leases. Upon adoption of this standard on January 1, 2019, the Company recorded a right-of-use asset and corresponding lease liability of $42.5 million and $46.1 million, respectively. No cumulative effect adjustment to retained earnings was recorded as of January 1, 2019. The new standard does not have a material impact on the Company's results of operations or cash flow.

Cautionary Note Regarding Forward-Looking Statements

This release contains forward-looking statements that relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. Examples of forward-looking statements include, among others, statements we make regarding our expectations with regard to our business, financial and operating results, future economic performance, and dividends, including our recent domestic select-service hotel franchise finance loan portfolio acquisition. The forward-looking statements contained herein reflect our current views about future events and financial performance and are subject to risks, uncertainties, assumptions and changes in circumstances that may cause our actual results to differ significantly from historical results and those expressed in any forward-looking statement. Some factors that could cause actual results to differ materially from historical or expected results include, among others: the risk factors discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 as filed with the Securities and Exchange Commission; changes in general economic conditions, either nationally or locally in the areas in which we conduct or will conduct our business; inflation, interest rate, market and monetary fluctuations; increases in competitive pressures among financial institutions and businesses offering similar products and services; higher defaults on our loan portfolio than we expect; changes in management’s estimate of the adequacy of the allowance for credit losses; legislative or regulatory changes or changes in accounting principles, policies or guidelines; supervisory actions by regulatory agencies which may limit our ability to pursue certain growth opportunities, including expansion through acquisitions; additional regulatory requirements resulting from our continued growth; management’s estimates and projections of interest rates and interest rate policy; the execution of our business plan; and other factors affecting the financial services industry generally or the banking industry in particular.

Any forward-looking statement made by us in this release is based only on information currently available to us and speaks only as of the date on which it is made. We do not intend and disclaim any duty or obligation to update or revise any industry information or forward-looking statements, whether written or oral, that may be made from time to time, set forth in this press release to reflect new information, future events or otherwise.

About Western Alliance Bancorporation

With more than $25 billion in assets, Western Alliance Bancorporation (NYSE:WAL) is one of the country’s top-performing banking companies. Western Alliance is ranked #1 regional bank by S&P Global Market Intelligence for 2018 and in the top 10 on the Forbes “Best Banks in America” list for four consecutive years, 2016-2019. Its primary subsidiary, Western Alliance Bank, Member FDIC, helps business clients realize their growth ambitions with local teams of experienced bankers who deliver superior service and a full spectrum of customized loan, deposit and treasury management capabilities. Business clients also benefit from a powerful array of specialized financial services that provide strong expertise and tailored solutions for a wide variety of industries and sectors. A national presence with a regional footprint, Western Alliance Bank operates individually branded, full-service banking divisions and has offices in key markets nationwide. For more information, visit westernalliancebank.com.

Western Alliance Bancorporation and Subsidiaries

Summary Consolidated Financial Data

Unaudited

Selected Balance Sheet Data:

As of June 30,

2019

2018

Change %

(in millions)

Total assets

$

25,314.8

$

21,367.5

18.5

%

Gross loans, net of deferred fees

19,250.3

16,138.3

19.3

Securities and money market investments

3,870.1

3,688.7

4.9

Total deposits

21,439.9

18,087.5

18.5

Qualifying debt

387.2

361.1

7.2

Stockholders' equity

2,851.3

2,391.7

19.2

Tangible common equity, net of tax (1)

2,555.0

2,094.3

22.0

Selected Income Statement Data:

For the Three Months Ended June 30,

For the Six Ended June 30,

2019

2018

Change %

2019

2018

Change %

(in thousands, except per share data)

(in thousands, except per share data)

Interest income

$

302,848

$

251,602

20.4

%

$

594,016

$

486,299

22.2

%

Interest expense

48,167

27,494

75.2

91,999

47,971

91.8

Net interest income

254,681

224,108

13.6

502,017

438,328

14.5

Provision for credit losses

7,000

5,000

40.0

10,500

11,000

(4.5

)

Net interest income after provision for credit losses

247,681

219,108

13.0

491,517

427,328

15.0

Non-interest income

14,218

13,444

5.8

29,628

25,087

18.1

Non-interest expense

114,213

102,548

11.4

227,127

200,697

13.2

Income before income taxes

147,686

130,004

13.6

294,018

251,718

16.8

Income tax expense

24,750

25,325

(2.3

)

50,286

46,139

9.0

Net income

$

122,936

$

104,679

17.4

$

243,732

$

205,579

18.6

Diluted earnings per share

$

1.19

$

0.99

20.2

$

2.34

$

1.95

20.0

(1)

See Reconciliation of Non-GAAP Financial Measures.

Western Alliance Bancorporation and Subsidiaries

 

Summary Consolidated Financial Data

 

Unaudited

 

 

Common Share Data:

 

 

At or For the Three Months Ended June 30,

For the Six Ended June 30,

 

2019

2018

Change %

2019

2018

Change %

Diluted earnings per share

 

$

1.19

$

0.99

20.2

%

$

2.34

$

1.95

20.0

%

Book value per common share

 

27.51

22.59

21.8

Tangible book value per share, net of tax (1)

 

24.65

19.78

24.6

Average shares outstanding (in thousands):

 

Basic

 

103,019

104,691

(1.6

)

103,523

104,611

(1.0

)

Diluted

 

103,501

105,420

(1.8

)

103,985

105,372

(1.3

)

Common shares outstanding

 

103,654

105,876

(2.1

)

  

Selected Performance Ratios:

 

Return on average assets (2)

 

2.05

%

2.02

%

1.5

%

2.08

%

2.02

%

3.0

%

Return on average tangible common equity (1, 2)

 

19.72

20.47

(3.7

)

20.10

20.60

(2.4

)

Net interest margin (2)

 

4.59

4.71

(2.5

)

4.65

4.69

(0.9

)

Operating efficiency ratio - tax equivalent basis (1)

 

42.0

42.1

(0.2

)

42.2

42.4

(0.4

)

Loan to deposit ratio

 

89.79

89.22

0.6

 

Asset Quality Ratios:

 

Net charge-offs to average loans outstanding (2)

 

0.03

%

0.07

%

(57.1

)%

0.03

%

0.05

%

(40.0

)%

Nonaccrual loans to gross loans

 

0.27

0.21

28.6

Nonaccrual loans and repossessed assets to total assets

 

0.27

0.29

(6.9

)

Allowance for credit losses to gross loans

 

0.83

0.91

(8.8

)

Allowance for credit losses to nonaccrual loans

 

309.52

432.38

(28.4

)

  

Capital Ratios (1):

 

 

Jun 30, 2019

Mar 31, 2019

Jun 30, 2018

Tangible common equity (1)

 

10.2

%

10.3

%

9.9

%

Common Equity Tier 1 (1), (3)

 

10.6

10.7

10.7

Tier 1 Leverage ratio (1), (3)

 

11.0

11.0

10.8

Tier 1 Capital (1), (3)

 

10.9

11.1

11.1

Total Capital (1), (3)

 

12.9

13.2

13.4

(1)

See Reconciliation of Non-GAAP Financial Measures.

(2)

Annualized on an actual/actual basis for periods less than 12 months.

(3)

Capital ratios for June 30, 2019 are preliminary until the Call Report is filed.

Western Alliance Bancorporation and Subsidiaries

Condensed Consolidated Income Statements

Unaudited

Three Months Ended June 30,

Six Months Ended June 30,

2019

2018

2019

2018

(dollars in thousands, except per share data)

Interest income:

Loans

$

270,349

$

222,035

$

529,167

$

427,994

Investment securities

28,900

27,445

58,034

54,066

Other

3,599

2,122

6,815

4,239

Total interest income

302,848

251,602

594,016

486,299

Interest expense:

Deposits

41,888

19,849

77,676

34,022

Qualifying debt

6,008

5,695

12,113

10,664

Borrowings

271

1,950

2,210

3,285

Total interest expense

48,167

27,494

91,999

47,971

Net interest income

254,681

224,108

502,017

438,328

Provision for credit losses

7,000

5,000

10,500

11,000

Net interest income after provision for credit losses

247,681

219,108

491,517

427,328

Non-interest income:

Service charges and fees

5,821

5,672

11,233

11,417

Card income

1,625

2,033

3,466

4,005

Foreign currency income

1,148

1,181

2,243

2,383

Income from bank owned life insurance

978

1,167

1,959

2,095

Income from equity investments

868

2,517

2,877

3,977

Lending related income and gains (losses) on sale of loans, net

553

1,047

804

2,025

Unrealized gains (losses) on assets measured at fair value, net

1,572

(685

)

4,406

(1,759

)

Other

1,653

512

2,640

944

Total non-interest income

14,218

13,444

29,628

25,087

Non-interest expenses:

Salaries and employee benefits

65,794

61,785

134,350

123,918

Legal, professional, and directors' fees

11,105

7,946

18,637

13,949

Occupancy

7,761

7,401

15,988

14,265

Deposit costs

7,669

4,114

13,393

7,040

Data processing

6,793

5,586

13,468

10,793

Insurance

2,811

3,885

5,620

7,754

Loan and repossessed asset expenses

1,460

1,017

3,466

1,600

Business development

1,444

1,414

3,529

3,142

Marketing

1,057

1,146

1,798

1,742

Card expense

710

1,081

1,344

2,023

Intangible amortization

387

399

774

797

Net (gain) loss on sales and valuations of repossessed and other assets

(620

)

(179

)

(523

)

(1,407

)

Other

7,842

6,953

15,283

15,081

Total non-interest expense

114,213

102,548

227,127

200,697

Income before income taxes

147,686

130,004

294,018

251,718

Income tax expense

24,750

25,325

50,286

46,139

Net income

$

122,936

$

104,679

$

243,732

$

205,579

Earnings per share:

Diluted shares

103,501

105,420

103,985

105,372

Diluted earnings per share

$

1.19

$

0.99

$

2.34

$

1.95

Western Alliance Bancorporation and Subsidiaries

Five Quarter Condensed Consolidated Income Statements

Unaudited

Three Months Ended

Jun 30, 2019

Mar 31, 2019

Dec 31, 2018

Sep 30, 2018

Jun 30, 2018

(in thousands, except per share data)

Interest income:

Loans

$

270,349

$

258,818

$

247,874

$

234,709

$

222,035

Investment securities

28,900

29,134

30,367

27,239

27,445

Other

3,599

3,216

3,727

3,268

2,122

Total interest income

302,848

291,168

281,968

265,216

251,602

Interest expense:

Deposits

41,888

35,788

31,176

25,266

19,849

Qualifying debt

6,008

6,105

5,829

5,794

5,695

Borrowings

271

1,939

1,450

118

1,950

Total interest expense

48,167

43,832

38,455

31,178

27,494

Net interest income

254,681

247,336

243,513

234,038

224,108

Provision for credit losses

7,000

3,500

6,000

6,000

5,000

Net interest income after provision for credit losses

247,681

243,836

237,513

228,038

219,108

Non-interest income:

Service charges and fees

5,821

5,412

5,611

5,267

5,672

Card income

1,625

1,841

1,866

2,138

2,033

Foreign currency income

1,148

1,095

1,285

1,092

1,181

Income from bank owned life insurance

978

981

983

868

1,167

Income from equity investments

868

2,009

3,178

1,440

2,517

Lending related income and gains (losses) on sale of loans, net

553

251

893

1,422

1,047

Gain (loss) on sales of investment securities

(424

)

(7,232

)

Unrealized gains (losses) on assets measured at fair value, net

1,572

2,834

(640

)

(1,212

)

(685

)

Other

1,653

987

859

635

512

Total non-interest income

14,218

15,410

13,611

4,418

13,444

Non-interest expenses:

Salaries and employee benefits

65,794

68,556

64,558

64,762

61,785

Legal, professional, and directors' fees

11,105

7,532

6,866

7,907

7,946

Occupancy

7,761

8,227

7,733

7,406

7,401

Deposit costs

7,669

5,724

7,012

4,848

4,114

Data processing

6,793

6,675

6,028

5,895

5,586

Insurance

2,811

2,809

2,539

3,712

3,885

Loan and repossessed asset expenses

1,460

2,006

1,748

1,230

1,017

Business development

1,444

2,085

1,437

1,381

1,414

Marketing

1,057

741

1,341

687

1,146

Card expense

710

634

996

1,282

1,081

Intangible amortization

387

387

399

398

399

Net (gain) loss on sales and valuations of repossessed and other assets

(620

)

97

1,483

(67

)

(179

)

Other

7,842

7,441

8,989

14,400

6,953

Total non-interest expense

114,213

112,914

111,129

113,841

102,548

Income before income taxes

147,686

146,332

139,995

118,615

130,004

Income tax expense

24,750

25,536

20,909

7,492

25,325

Net income

$

122,936

$

120,796

$

119,086

$

111,123

$

104,679

Earnings per share:

Diluted shares

103,501

104,475

105,286

105,448

105,420

Diluted earnings per share

$

1.19

$

1.16

$

1.13

$

1.05

$

0.99

Western Alliance Bancorporation and Subsidiaries

Five Quarter Condensed Consolidated Balance Sheets

Unaudited

Jun 30, 2019

Mar 31, 2019

Dec 31, 2018

Sep 30, 2018

Jun 30, 2018

(in millions)

Assets:

Cash and due from banks

$

1,067.7

$

785.6

$

498.6

$

700.5

$

506.8

Securities and money market investments

3,870.1

3,739.4

3,761.1

3,633.7

3,688.7

Loans held for investment:

Commercial and industrial

8,454.2

7,723.7

7,762.6

7,487.7

7,278.4

Commercial real estate - non-owner occupied

4,685.5

4,304.3

4,213.4

3,953.0

4,010.6

Commercial real estate - owner occupied

2,254.1

2,285.3

2,325.4

2,288.2

2,270.5

Construction and land development

2,210.4

2,283.5

2,134.7

2,107.6

1,978.3

Residential real estate

1,580.1

1,461.5

1,204.4

827.1

545.3

Consumer

66.0

58.4

70.1

69.2

55.2

Gross loans, net of deferred fees

19,250.3

18,116.7

17,710.6

16,732.8

16,138.3

Allowance for credit losses

(160.4

)

(155.0

)

(152.7

)

(150.0

)

(147.1

)

Loans, net

19,089.9

17,961.7

17,557.9

16,582.8

15,991.2

Premises and equipment, net

123.1

119.8

119.5

119.2

115.4

Operating lease right-of-use asset

71.1

72.8

Other assets acquired through foreclosure, net

17.7

17.7

17.9

20.0

27.5

Bank owned life insurance

172.1

171.1

170.1

169.2

168.7

Goodwill and other intangibles, net

298.4

298.8

299.2

299.5

300.0

Other assets

604.7

625.9

685.2

651.2

569.2

Total assets

$

25,314.8

$

23,792.8

$

23,109.5

$

22,176.1

$

21,367.5

Liabilities and Stockholders' Equity:

Liabilities:

Deposits

Non-interest bearing demand deposits

$

8,677.3

$

7,679.3

$

7,456.1

$

8,014.7

$

7,947.9

Interest bearing:

Demand

2,525.6

2,499.8

2,555.6

1,978.4

1,864.6

Savings and money market

7,898.3

7,798.3

7,330.7

7,059.1

6,468.8

Certificates of deposit

2,338.7

2,231.3

1,835.0

1,856.4

1,806.2

Total deposits

21,439.9

20,208.7

19,177.4

18,908.6

18,087.5

Customer repurchase agreements

13.9

15.1

22.4

20.9

18.0

Total customer funds

21,453.8

20,223.8

19,199.8

18,929.5

18,105.5

Borrowings

491.0

75.0

Qualifying debt

387.2

374.0

360.5

359.1

361.1

Operating lease liability

76.2

77.8

Accrued interest payable and other liabilities

546.3

396.6

444.5

399.1

434.2

Total liabilities

22,463.5

21,072.2

20,495.8

19,687.7

18,975.8

Stockholders' Equity:

Common stock and additional paid-in capital

1,310.9

1,329.6

1,364.6

1,392.6

1,387.9

Retained earnings

1,514.0

1,399.2

1,282.7

1,166.2

1,055.1

Accumulated other comprehensive income (loss)

26.4

(8.2

)

(33.6

)

(70.4

)

(51.3

)

Total stockholders' equity

2,851.3

2,720.6

2,613.7

2,488.4

2,391.7

Total liabilities and stockholders' equity

$

25,314.8

$

23,792.8

$

23,109.5

$

22,176.1

$

21,367.5

Western Alliance Bancorporation and Subsidiaries

Changes in the Allowance For Credit Losses

Unaudited

Three Months Ended

Jun 30, 2019

Mar 31, 2019

Dec 31, 2018

Sep 30, 2018

Jun 30, 2018

(in thousands)

Balance, beginning of period

$

154,987

$

152,717

$

150,011

$

147,083

$

144,659

Provision for credit losses

7,000

3,500

6,000

6,000

5,000

Recoveries of loans previously charged-off:

Commercial and industrial

495

477

690

362

916

Commercial real estate - non-owner occupied

53

804

15

Commercial real estate - owner occupied

386

453

9

52

231

Construction and land development

9

55

13

24

8

Residential real estate

27

93

116

440

141

Consumer

8

5

8

11

14

Total recoveries

978

1,083

836

1,693

1,325

Loans charged-off:

Commercial and industrial

2,018

2,124

4,130

4,610

2,777

Commercial real estate - non-owner occupied

233

Commercial real estate - owner occupied

Construction and land development

141

1

Residential real estate

397

188

46

885

Consumer

1

109

5

Total loans charged-off

2,556

2,313

4,130

4,765

3,901

Net loan charge-offs

1,578

1,230

3,294

3,072

2,576

Balance, end of period

$

160,409

$

154,987

$

152,717

$

150,011

$

147,083

Net charge-offs to average loans - annualized

0.03

%

0.03

%

0.08

%

0.08

%

0.07

%

Allowance for credit losses to gross loans

0.83

%

0.86

%

0.86

%

0.90

%

0.91

%

Allowance for credit losses to gross organic loans

0.87

0.90

0.92

0.97

0.99

Allowance for credit losses to nonaccrual loans

309.52

353.15

550.41

406.89

432.38

Nonaccrual loans

$

51,825

$

43,887

$

27,746

$

36,868

$

34,017

Nonaccrual loans to gross loans

0.27

%

0.24

%

0.16

%

0.22

%

0.21

%

Repossessed assets

$

17,707

$

17,707

$

17,924

$

20,028

$

27,541

Nonaccrual loans and repossessed assets to total assets

0.27

%

0.26

%

0.20

%

0.26

%

0.29

%

Loans past due 90 days, still accruing

$

$

$

594

$

$

Loans past due 90 days and still accruing to gross loans

%

%

0.00

%

%

%

Loans past due 30 to 89 days, still accruing

$

9,681

$

20,480

$

16,557

$

9,360

$

1,545

Loans past due 30 to 89 days, still accruing to gross loans

0.05

%

0.11

%

0.09

%

0.06

%

0.01

%

Special mention loans

$

197,996

$

134,348

$

88,856

$

124,689

$

150,278

Special mention loans to gross loans

1.03

%

0.74

%

0.50

%

0.75

%

0.93

%

Classified loans on accrual

$

131,442

$

161,620

$

181,105

$

176,727

$

156,659

Classified loans on accrual to gross loans

0.68

%

0.89

%

1.02

%

1.06

%

0.97

%

Classified assets

$

216,000

$

238,241

$

242,101

$

252,770

$

240,063

Classified assets to total assets

0.85

%

1.00

%

1.05

%

1.14

%

1.12

%

Western Alliance Bancorporation and Subsidiaries

Analysis of Average Balances, Yields and Rates

Unaudited

Three Months Ended

June 30, 2019

March 31, 2019

Average
Balance

Interest

Average Yield /
Cost

Average
Balance

Interest

Average Yield /
Cost

($ in millions)

($ in thousands)

($ in millions)

($ in thousands)

Interest earning assets

Loans:

Commercial and industrial

$

7,895.3

$

113,387

5.92

%

$

7,538.7

$

109,089

6.03

%

CRE - non-owner occupied

4,466.2

67,510

6.08

4,211.1

62,441

6.03

CRE - owner occupied

2,253.3

29,931

5.43

2,327.5

30,084

5.35

Construction and land development

2,225.5

39,806

7.20

2,178.3

39,704

7.41

Residential real estate

1,511.8

18,794

4.99

1,391.1

16,567

4.83

Consumer

61.5

921

6.01

62.4

933

6.07

Total loans (1), (2), (3)

18,413.6

270,349

5.98

17,709.1

258,818

6.02

Securities:

Securities - taxable

2,757.6

19,730

2.87

2,762.6

20,336

2.99

Securities - tax-exempt

979.5

9,170

4.66

895.6

8,798

4.98

Total securities (1)

3,737.1

28,900

3.34

3,658.2

29,134

3.47

Cash and other

635.2

3,599

2.27

450.8

3,216

2.89

Total interest earning assets

22,785.9

302,848

5.44

21,818.1

291,168

5.53

Non-interest earning assets

Cash and due from banks

166.7

162.2

Allowance for credit losses

(156.4

)

(154.2

)

Bank owned life insurance

171.5

170.5

Other assets

1,088.8

1,112.9

Total assets

$

24,056.5

$

23,109.5

Interest-bearing liabilities

Interest-bearing deposits:

Interest-bearing transaction accounts

$

2,551.2

$

5,550

0.87

%

$

2,495.9

$

5,583

0.91

%

Savings and money market

7,650.5

24,668

1.29

7,446.6

22,007

1.20

Certificates of deposit

2,271.1

11,670

2.06

1,817.8

8,198

1.83

Total interest-bearing deposits

12,472.8

41,888

1.35

11,760.3

35,788

1.23

Short-term borrowings

58.2

271

1.87

315.8

1,939

2.49

Qualifying debt

377.3

6,008

6.39

363.0

6,105

6.82

Total interest-bearing liabilities

12,908.3

48,167

1.50

12,439.1

43,832

1.43

Interest cost of funding earning assets

0.85

0.82

Non-interest-bearing liabilities

Non-interest-bearing demand deposits

7,869.2

7,555.6

Other liabilities

480.5

425.0

Stockholders’ equity

2,798.5

2,689.8

Total liabilities and stockholders' equity

$

24,056.5

$

23,109.5

Net interest income and margin (4)

$

254,681

4.59

%

$

247,336

4.71

%

(1)

Yields on loans and securities have been adjusted to a tax equivalent basis. The tax equivalent adjustment was $6.2 million and $6.1 million for the three months ended June 30, 2019 and March 31, 2019, respectively.

(2)

Included in the yield computation are net loan fees of $12.2 million and accretion on acquired loans of $4.6 million for the three months ended June 30, 2019, compared to $12.3 million and $2.8 million for the three months ended March 31, 2019.

(3)

Includes non-accrual loans.

(4)

Net interest margin is computed by dividing net interest income by total average earning assets, annualized on an actual/actual basis.

Western Alliance Bancorporation and Subsidiaries

Analysis of Average Balances, Yields and Rates

Unaudited

Three Months Ended

June 30, 2019

June 30, 2018

Average
Balance

Interest

Average Yield /
Cost

Average
Balance

Interest

Average Yield /
Cost

($ in millions)

($ in thousands)

($ in millions)

($ in thousands)

Interest earning assets

Loans:

Commercial and industrial

$

7,895.3

$

113,387

5.92

%

$

6,902.5

$

94,243

5.66

%

CRE - non-owner occupied

4,466.2

67,510

6.08

3,964.2

59,373

6.02

CRE - owner occupied

2,253.3

29,931

5.43

2,242.6

28,698

5.25

Construction and land development

2,225.5

39,806

7.20

1,952.0

33,567

6.91

Residential real estate

1,511.8

18,794

4.99

433.4

5,414

5.01

Consumer

61.5

921

6.01

52.4

740

5.67

Total loans (1), (2), (3)

18,413.6

270,349

5.98

15,547.1

222,035

5.83

Securities:

Securities - taxable

2,757.6

19,730

2.87

2,802.9

19,274

2.76

Securities - tax-exempt

979.5

9,170

4.66

848.7

8,171

4.82

Total securities (1)

3,737.1

28,900

3.34

3,651.6

27,445

3.24

Cash and other

635.2

3,599

2.27

382.6

2,122

2.22

Total interest earning assets

22,785.9

302,848

5.44

19,581.3

251,602

5.28

Non-interest earning assets

Cash and due from banks

166.7

145.0

Allowance for credit losses

(156.4

)

(145.6

)

Bank owned life insurance

171.5

168.3

Other assets

1,088.8

1,010.7

Total assets

$

24,056.5

$

20,759.7

Interest-bearing liabilities

Interest-bearing deposits:

Interest-bearing transaction accounts

$

2,551.2

$

5,550

0.87

%

$

1,824.8

$

2,360

0.52

%

Savings and money market

7,650.5

24,668

1.29

6,126.3

12,324

0.81

Certificates of deposit

2,271.1

11,670

2.06

1,714.8

5,165

1.21

Total interest-bearing deposits

12,472.8

41,888

1.35

9,665.9

19,849

0.82

Short-term borrowings

58.2

271

1.87

413.2

1,950

1.89

Qualifying debt

377.3

6,008

6.39

362.8

5,695

6.30

Total interest-bearing liabilities

12,908.3

48,167

1.50

10,441.9

27,494

1.06

Interest cost of funding earning assets

0.85

0.57

Non-interest-bearing liabilities

Non-interest-bearing demand deposits

7,869.2

7,612.0

Other liabilities

480.5

354.0

Stockholders’ equity

2,798.5

2,351.8

Total liabilities and stockholders' equity

$

24,056.5

$

20,759.7

Net interest income and margin (4)

$

254,681

4.59

%

$

224,108

4.71

%

(1)

Yields on loans and securities have been adjusted to a tax equivalent basis. The tax equivalent adjustment was $6.2 million and $5.9 million for the three months ended June 30, 2019 and 2018, respectively.

(2)

Included in the yield computation are net loan fees of $12.2 million and accretion on acquired loans of $4.6 million for the three months ended June 30, 2019, compared to $11.0 million and $5.1 million for the three months ended June 30, 2018.

(3)

Includes non-accrual loans.

(4)

Net interest margin is computed by dividing net interest income by total average earning assets, annualized on an actual/actual basis.

Western Alliance Bancorporation and Subsidiaries

Analysis of Average Balances, Yields and Rates

Unaudited

Six Months Ended June 30,

2019

2018

Average
Balance

Interest

Average Yield /
Cost

Average
Balance

Interest

Average Yield /
Cost

($ in millions)

($ in thousands)

($ in millions)

($ in thousands)

Interest earning assets

Loans:

Commercial and industrial

$

7,718.0

$

222,476

5.98

%

$

6,742.6

$

179,789

5.56

%

CRE - non-owner occupied

4,339.4

129,951

6.05

3,942.6

115,659

5.93

CRE - owner occupied

2,290.2

60,015

5.39

2,242.2

57,249

5.27

Construction and land development

2,202.0

79,509

7.30

1,871.1

63,186

6.82

Residential real estate

1,451.8

35,362

4.91

429.4

10,694

5.02

Consumer

61.9

1,854

6.04

50.2

1,417

5.70

Total loans (1), (2), (3)

18,063.3

529,167

6.00

15,278.1

427,994

5.75

Securities:

Securities - taxable

2,760.1

40,066

2.93

2,838.9

38,423

2.73

Securities - tax-exempt

937.8

17,968

4.81

842.8

15,643

4.68

Total securities (1)

3,697.9

58,034

3.40

3,681.7

54,066

3.18

Cash and other

543.5

6,815

2.53

404.0

4,239

2.12

Total interest earning assets

22,304.7

594,016

5.48

19,363.8

486,299

5.19

Non-interest earning assets

Cash and due from banks

164.4

143.7

Allowance for credit losses

(155.3

)

(143.3

)

Bank owned life insurance

171.0

168.2

Other assets

1,100.8

1,000.8

Total assets

$

23,585.6

$

20,533.2

Interest-bearing liabilities

Interest-bearing deposits:

Interest-bearing transaction accounts

$

2,523.7

$

11,133

0.89

%

$

1,740.2

$

3,741

0.43

%

Savings and money market

7,549.1

46,675

1.25

6,176.2

21,238

0.69

Certificates of deposit

2,045.7

19,868

1.96

1,647.7

9,043

1.11

Total interest-bearing deposits

12,118.5

77,676

1.29

9,564.1

34,022

0.72

Short-term borrowings

186.3

2,210

2.39

382.6

3,285

1.73

Qualifying debt

370.2

12,113

6.60

365.8

10,664

5.88

Total interest-bearing liabilities

12,675.0

91,999

1.46

10,312.5

47,971

0.94

Interest cost of funding earning assets

0.83

0.50

Non-interest-bearing liabilities

Non-interest-bearing demand deposits

7,713.3

7,561.6

Other liabilities

452.9

346.3

Stockholders’ equity

2,744.4

2,312.8

Total liabilities and stockholders' equity

$

23,585.6

$

20,533.2

Net interest income and margin (4)

$

502,017

4.65

%

$

438,328

4.69

%

(1)

Yields on loans and securities have been adjusted to a tax equivalent basis. The tax equivalent adjustment was $12.3 million and $11.7 million for the six months ended June 30, 2019 and 2018, respectively.

(2)

Included in the yield computation are net loan fees of $24.5 million and accretion on acquired loans of $7.4 million for the six months ended June 30, 2019, compared to $20.9 million and $10.8 million for the six months ended June 30, 2018.

(3)

Includes non-accrual loans.

(4)

Net interest margin is computed by dividing net interest income by total average earning assets.

Western Alliance Bancorporation and Subsidiaries

Operating Segment Results

Unaudited

Balance Sheet:

Regional Segments

Consolidated
Company

Arizona

Nevada

Southern
California

Northern
California

At June 30, 2019:

(dollars in millions)

Assets:

Cash, cash equivalents, and investment securities

$

4,937.8

$

1.8

$

7.6

$

2.1

$

1.9

Loans, net of deferred loan fees and costs

19,250.3

3,937.0

2,095.2

2,256.7

1,195.4

Less: allowance for credit losses

(160.4

)

(33.2

)

(18.1

)

(19.5

)

(9.2

)

Total loans

19,089.9

3,903.8

2,077.1

2,237.2

1,186.2

Other assets acquired through foreclosure, net

17.7

0.7

13.9

Goodwill and other intangible assets, net

298.4

23.2

155.1

Other assets

971.0

46.8

57.6

16.1

17.0

Total assets

$

25,314.8

$

3,953.1

$

2,179.4

$

2,255.4

$

1,360.2

Liabilities:

Deposits

$

21,439.9

$

6,107.0

$

4,188.6

$

2,535.9

$

2,008.9

Borrowings and qualifying debt

387.2

Other liabilities

636.4

13.2

11.9

0.5

14.7

Total liabilities

22,463.5

6,120.2

4,200.5

2,536.4

2,023.6

Allocated equity:

2,851.3

484.6

286.0

255.6

297.5

Total liabilities and stockholders' equity

$

25,314.8

$

6,604.8

$

4,486.5

$

2,792.0

$

2,321.1

Excess funds provided (used)

2,651.7

2,307.1

536.6

960.9

No. of offices

47

10

16

9

3

No. of full-time equivalent employees

1,806

103

89

117

118

Income Statement:

Three Months Ended June 30, 2019:

(in thousands)

Net interest income

$

254,681

$

59,719

$

39,528

$

31,644

$

23,996

Provision for (recovery of) credit losses

7,000

1,443

(305

)

67

(152

)

Net interest income after provision for credit losses

247,681

58,276

39,833

31,577

24,148

Non-interest income

14,218

1,707

2,677

974

2,162

Non-interest expense

(114,213

)

(22,693

)

(14,107

)

(15,122

)

(12,549

)

Income (loss) before income taxes

147,686

37,290

28,403

17,429

13,761

Income tax expense (benefit)

24,750

9,322

5,965

4,880

3,853

Net income

$

122,936

$

27,968

$

22,438

$

12,549

$

9,908

Six Months Ended June 30, 2019:

(in thousands)

Net interest income

$

502,017

$

114,945

$

78,626

$

62,120

$

47,029

Provision for (recovery of) credit losses

10,500

1,604

228

800

(871

)

Net interest income after provision for credit losses

491,517

113,341

78,398

61,320

47,900

Non-interest income

29,628

3,229

5,250

1,975

4,382

Non-interest expense

(227,127

)

(44,943

)

(29,888

)

(29,704

)

(26,040

)

Income (loss) before income taxes

294,018

71,627

53,760

33,591

26,242

Income tax expense (benefit)

50,286

17,907

11,289

9,406

7,348

Net income

$

243,732

$

53,720

$

42,471

$

24,185

$

18,894

Western Alliance Bancorporation and Subsidiaries

Operating Segment Results

Unaudited

Balance Sheet:

National Business Lines

HOA
Services

Public &
Nonprofit
Finance

Technology &
Innovation

Hotel
Franchise
Finance

Other NBLs

Corporate &
Other

At June 30, 2019:

(dollars in millions)

Assets:

Cash, cash equivalents, and investment securities

$

$

$

$

$

10.4

$

4,914.0

Loans, net of deferred loan fees and costs

214.7

1,626.6

1,246.5

1,655.7

5,015.5

7.0

Less: allowance for credit losses

(1.8

)

(14.8

)

(10.2

)

(10.3

)

(43.2

)

(0.1

)

Total loans

212.9

1,611.8

1,236.3

1,645.4

4,972.3

6.9

Other assets acquired through foreclosure, net

3.1

Goodwill and other intangible assets, net

120.0

0.1

Other assets

0.9

17.1

6.9

7.7

63.8

737.1

Total assets

$

213.8

$

1,628.9

$

1,363.2

$

1,653.2

$

5,046.5

$

5,661.1

Liabilities:

Deposits

$

3,047.5

$

$

2,853.2

$

$

32.4

$

666.4

Borrowings and qualifying debt

387.2

Other liabilities

1.3

58.3

(0.2

)

92.3

444.4

Total liabilities

3,048.8

58.3

2,853.2

(0.2

)

124.7

1,498.0

Allocated equity:

79.9

132.3

277.5

138.4

414.1

485.4

Total liabilities and stockholders' equity

$

3,128.7

$

190.6

$

3,130.7

$

138.2

$

538.8

$

1,983.4

Excess funds provided (used)

2,914.9

(1,438.3

)

1,767.5

(1,515.0

)

(4,507.7

)

(3,677.7

)

No. of offices

1

1

9

1

4

(7

)

No. of full-time equivalent employees

69

13

72

16

68

1,141

Income Statement:

Three Months Ended June 30, 2019:

(in thousands)

Net interest income

$

21,905

$

3,461

$

28,536

$

13,490

$

29,586

$

2,816

Provision for (recovery of) credit losses

(7

)

96

2,657

832

2,369

Net interest income after provision for credit losses

21,912

3,365

25,879

12,658

27,217

2,816

Non-interest income

88

2,163

1,549

2,898

Non-interest expense

(9,549

)

(1,931

)

(10,015

)

(2,162

)

(11,073

)

(15,012

)

Income (loss) before income taxes

12,451

1,434

18,027

10,496

17,693

(9,298

)

Income tax expense (benefit)

2,864

330

4,146

2,414

4,069

(13,093

)

Net income

$

9,587

$

1,104

$

13,881

$

8,082

$

13,624

$

3,795

Six Months Ended June 30, 2019:

(in thousands)

Net interest income

$

42,546

$

6,884

$

57,939

$

26,434

$

55,277

$

10,217

Provision for (recovery of) credit losses

(33

)

55

1,739

1,631

5,347

Net interest income after provision for credit losses

42,579

6,829

56,200

24,803

49,930

10,217

Non-interest income

184

5,525

2,207

6,876

Non-interest expense

(18,008

)

(3,838

)

(21,903

)

(4,560

)

(20,409

)

(27,834

)

Income (loss) before income taxes

24,755

2,991

39,822

20,243

31,728

(10,741

)

Income tax expense (benefit)

5,694

688

9,159

4,656

7,297

(23,158

)

Net income

$

19,061

$

2,303

$

30,663

$

15,587

$

24,431

$

12,417

Western Alliance Bancorporation and Subsidiaries

Operating Segment Results

Unaudited

Balance Sheet:

Regional Segments

Consolidated
Company

Arizona

Nevada

Southern
California

Northern
California

At December 31, 2018:

(dollars in millions)

Assets:

Cash, cash equivalents, and investment securities

$

4,259.7

$

2.5

$

10.9

$

2.5

$

3.0

Loans, net of deferred loan fees and costs

17,710.6

3,647.9

2,003.5

2,161.1

1,300.2

Less: allowance for credit losses

(152.7

)

(30.7

)

(18.7

)

(19.8

)

(10.7

)

Total loans

17,557.9

3,617.2

1,984.8

2,141.3

1,289.5

Other assets acquired through foreclosure, net

17.9

0.8

13.9

Goodwill and other intangible assets, net

299.2

23.2

155.5

Other assets

974.8

46.9

57.8

14.2

23.9

Total assets

$

23,109.5

$

3,667.4

$

2,090.6

$

2,158.0

$

1,471.9

Liabilities:

Deposits

$

19,177.4

$

5,090.2

$

3,996.4

$

2,347.5

$

1,839.1

Borrowings and qualifying debt

851.5

Other liabilities

466.9

10.4

14.5

4.5

12.2

Total liabilities

20,495.8

5,100.6

4,010.9

2,352.0

1,851.3

Allocated equity:

2,613.7

441.0

277.4

242.9

304.1

Total liabilities and stockholders' equity

$

23,109.5

$

5,541.6

$

4,288.3

$

2,594.9

$

2,155.4

Excess funds provided (used)

1,874.2

2,197.7

436.9

683.5

No. of offices

47

10

16

9

3

No. of full-time equivalent employees

1,787

119

94

116

123

Income Statements:

Three Months Ended June 30, 2018:

(in thousands)

Net interest income (expense)

$

224,108

$

57,977

$

35,276

$

27,664

$

23,001

Provision for (recovery of) credit losses

5,000

518

(243

)

(276

)

13

Net interest income (expense) after provision for credit losses

219,108

57,459

35,519

27,940

22,988

Non-interest income

13,444

2,256

2,679

966

2,421

Non-interest expense

(102,548

)

(22,419

)

(15,931

)

(14,491

)

(13,429

)

Income (loss) before income taxes

130,004

37,296

22,267

14,415

11,980

Income tax expense (benefit)

25,325

9,324

4,676

4,036

3,355

Net income

$

104,679

$

27,972

$

17,591

$

10,379

$

8,625

Six Months Ended June 30, 2018:

(in thousands)

Net interest income (expense)

$

438,328

$

112,532

$

71,966

$

55,466

$

45,256

Provision for (recovery of) credit losses

11,000

1,952

(1,967

)

454

1,561

Net interest income (expense) after provision for credit losses

427,328

110,580

73,933

55,012

43,695

Non-interest income

25,087

3,672

6,012

1,967

4,969

Non-interest expense

(200,697

)

(43,923

)

(30,015

)

(28,137

)

(25,932

)

Income (loss) before income taxes

251,718

70,329

49,930

28,842

22,732

Income tax expense (benefit)

46,139

17,645

10,579

8,171

6,452

Net income

$

205,579

$

52,684

$

39,351

$

20,671

$

16,280

No. of offices

47

10

16

9

3

No. of full-time equivalent employees

1,773

124

98

116

130

Western Alliance Bancorporation and Subsidiaries

Operating Segment Results

Unaudited

Balance Sheet:

National Business Lines

HOA
Services

Public &
Nonprofit
Finance

Technology &
Innovation

Hotel
Franchise
Finance

Other NBLs

Corporate &
Other

At December 31, 2018:

(dollars in millions)

Assets:

Cash, cash equivalents, and investment securities

$

$

$

$

$

$

4,240.8

Loans, net of deferred loan fees and costs

210.0

1,547.5

1,200.9

1,479.9

4,154.9

4.7

Less: allowance for credit losses

(1.9

)

(14.2

)

(10.0

)

(8.5

)

(38.2

)

Total loans

208.1

1,533.3

1,190.9

1,471.4

4,116.7

4.7

Other assets acquired through foreclosure, net

3.2

Goodwill and other intangible assets, net

120.4

0.1

Other assets

0.9

20.1

6.3

7.2

37.1

760.4

Total assets

$

209.0

$

1,553.4

$

1,317.6

$

1,478.7

$

4,153.8

$

5,009.1

Liabilities:

Deposits

$

2,607.2

$

$

2,559.0

$

$

$

738.0

Borrowings and qualifying debt

851.5

Other liabilities

2.1

25.2

0.1

0.4

49.6

347.9

Total liabilities

2,609.3

25.2

2,559.1

0.4

49.6

1,937.4

Allocated equity:

70.7

123.9

268.7

122.3

340.0

422.7

Total liabilities and stockholders' equity

$

2,680.0

$

149.1

$

2,827.8

$

122.7

$

389.6

$

2,360.1

Excess funds provided (used)

2,471.0

(1,404.3

)

1,510.2

(1,356.0

)

(3,764.2

)

(2,649.0

)

No. of offices

1

1

9

1

4

(7

)

No. of full-time equivalent employees

68

10

61

16

53

1,127

Income Statement:

Three Months Ended June 30, 2018:

(in thousands)

Net interest income (expense)

$

16,046

$

3,794

$

24,562

$

13,874

$

19,672

$

2,242

Provision for (recovery of) credit losses

135

(27

)

2,256

548

2,074

2

Net interest income (expense) after provision for credit losses

15,911

3,821

22,306

13,326

17,598

2,240

Non-interest income

179

3,630

409

904

Non-interest expense

(8,033

)

(2,080

)

(9,899

)

(2,200

)

(6,250

)

(7,816

)

Income (loss) before income taxes

8,057

1,741

16,037

11,126

11,757

(4,672

)

Income tax expense (benefit)

1,853

401

3,688

2,559

2,704

(7,271

)

Net income

$

6,204

$

1,340

$

12,349

$

8,567

$

9,053

$

2,599

Six Months Ended June 30, 2018:

(in thousands)

Net interest income (expense)

$

31,405

$

7,539

$

47,383

$

28,060

$

38,484

$

237

Provision for (recovery of) credit losses

182

(233

)

3,907

1,783

3,359

2

Net interest income (expense) after provision for credit losses

31,223

7,772

43,476

26,277

35,125

235

Non-interest income

328

6,681

13

633

812

Non-interest expense

(15,836

)

(4,254

)

(19,733

)

(4,405

)

(11,912

)

(16,550

)

Income (loss) before income taxes

15,715

3,518

30,424

21,885

23,846

(15,503

)

Income tax expense (benefit)

3,615

809

6,998

5,033

5,484

(18,647

)

Net income

$

12,100

$

2,709

$

23,426

$

16,852

$

18,362

$

3,144

No. of offices

1

1

9

1

4

(7

)

No. of full-time equivalent employees

65

11

56

17

42

1,114

Western Alliance Bancorporation and Subsidiaries

Reconciliation of Non-GAAP Financial Measures

Unaudited

 

Operating Pre-Provision Net Revenue by Quarter:

 

Three Months Ended

 

Jun 30, 2019

Mar 31, 2019

Dec 31, 2018

Sep 30, 2018

Jun 30, 2018

 

(in thousands)

Total non-interest income

 

$

14,218

$

15,410

$

13,611

$

4,418

$

13,444

Less:

 

(Loss) gain on sales of investment securities, net

 

(424

)

(7,232

)

Unrealized gains (losses) on assets measured at fair value, net

 

1,572

2,834

(640

)

(1,212

)

(685

)

Total operating non-interest income (1)

 

12,646

12,576

14,675

12,862

14,129

Plus: net interest income

 

254,681

247,336

243,513

234,038

224,108

Net operating revenue (1)

 

$

267,327

$

259,912

$

258,188

$

246,900

$

238,237

 

Total non-interest expense

 

$

114,213

$

112,914

$

111,129

$

113,841

$

102,548

Less:

 

Advance funding to charitable foundation

 

7,645

401(k) plan change and other miscellaneous items

 

1,218

Net loss (gain) on sales and valuations of repossessed and other assets

 

(620

)

97

1,483

(67

)

(179

)

Total operating non-interest expense (1)

 

$

114,833

$

112,817

$

109,646

$

105,045

$

102,727

 

Operating pre-provision net revenue (2)

 

$

152,494

$

147,095

$

148,542

$

141,855

$

135,510

 

Plus:

 

Non-operating revenue adjustments

 

1,572

2,834

(1,064

)

(8,444

)

(685

)

Less:

 

Provision for credit losses

 

7,000

3,500

6,000

6,000

5,000

Non-operating expense adjustments

 

(620

)

97

1,483

8,796

(179

)

Income tax expense

 

24,750

25,536

20,909

7,492

25,325

Net income

 

$

122,936

$

120,796

$

119,086

$

111,123

$

104,679

(1), (2)

See Non-GAAP Financial Measures footnotes.

Western Alliance Bancorporation and Subsidiaries

Reconciliation of Non-GAAP Financial Measures

Unaudited

 

Operating Efficiency Ratio by Quarter:

 

 

Three Months Ended

 

Jun 30, 2019

Mar 31, 2019

Dec 31, 2018

Sep 30, 2018

Jun 30, 2018

 

(in thousands)

Total operating non-interest expense

 

$

114,833

$

112,817

$

109,646

$

105,045

$

102,727

Divided by:

 

Total net interest income

 

254,681

247,336

243,513

234,038

224,108

Plus:

 

Tax equivalent interest adjustment

 

6,218

6,094

6,140

6,003

5,939

Operating non-interest income

 

12,646

12,576

14,675

12,862

14,129

 

$

273,545

$

266,006

$

264,328

$

252,903

$

244,176

Operating efficiency ratio - tax equivalent basis (3)

 

42.0

%

42.4

%

41.5

%

41.5

%

42.1

%

  

Tangible Common Equity:

 

 

Jun 30, 2019

Mar 31, 2019

Dec 31, 2018

Sep 30, 2018

Jun 30, 2018

 

(dollars and shares in thousands)

Total stockholders' equity

 

$

2,851,264

$

2,720,620

$

2,613,734

$

2,488,393

$

2,391,684

Less: goodwill and intangible assets

 

298,381

298,768

299,155

299,553

299,951

Total tangible common equity

 

2,552,883

2,421,852

2,314,579

2,188,840

2,091,733

Plus: deferred tax - attributed to intangible assets

 

2,105

2,183

1,885

2,462

2,555

Total tangible common equity, net of tax

 

$

2,554,988

$

2,424,035

$

2,316,464

$

2,191,302

$

2,094,288

Total assets

 

$

25,314,785

$

23,792,846

$

23,109,486

$

22,176,147

$

21,367,452

Less: goodwill and intangible assets, net

 

298,381

298,768

299,155

299,553

299,951

Tangible assets

 

25,016,404

23,494,078

22,810,331

21,876,594

21,067,501

Plus: deferred tax - attributed to intangible assets

 

2,105

2,183

1,885

2,462

2,555

Total tangible assets, net of tax

 

$

25,018,509

$

23,496,261

$

22,812,216

$

21,879,056

$

21,070,056

Tangible common equity ratio (4)

 

10.2

%

10.3

%

10.2

%

10.0

%

9.9

%

Common shares outstanding

 

103,654

104,483

104,949

105,861

105,876

Tangible book value per share, net of tax (5)

 

$

24.65

$

23.20

$

22.07

$

20.70

$

19.78

 

(3), (4), (5) See Non-GAAP Financial Measures footnotes.

Western Alliance Bancorporation and Subsidiaries

Reconciliation of Non-GAAP Financial Measures

Unaudited

 

Regulatory Capital:  

 

Jun 30, 2019

Dec 31, 2018

 

(in thousands)

Common Equity Tier 1:

 

Common equity

 

$

2,851,264

$

2,613,734

Less:

 

Non-qualifying goodwill and intangibles

 

296,190

296,769

Disallowed deferred tax asset

 

1,835

768

AOCI related adjustments

 

20,210

(47,055

)

Unrealized gain on changes in fair value liabilities

 

6,170

13,432

Common equity Tier 1 (6) (9)

 

$

2,526,859

$

2,349,820

Divided by: estimated risk-weighted assets (7) (9)

 

$

23,850,756

$

21,983,976

Common equity Tier 1 ratio (7) (9)

 

10.6

%

10.7

%

 

Common equity Tier 1 (6)(9)

 

2,526,859

2,349,820

Plus:

 

Trust preferred securities

 

81,500

81,500

Less:

 

Disallowed deferred tax asset

 

Unrealized gain on changes in fair value of liabilities

 

Tier 1 capital (6) (9)

 

$

2,608,359

$

2,431,320

Divided by: Tangible average assets

 

$

23,768,505

$

22,204,799

Tier 1 leverage ratio

 

11.0

%

10.9

%

 

Total Capital:

 

Tier 1 capital (6) (9)

 

$

2,608,359

$

2,431,320

Plus:

 

Subordinated debt

 

306,983

305,131

Qualifying allowance for credit losses

 

160,409

152,717

Other

 

9,188

8,188

Less: Tier 2 qualifying capital deductions

 

Tier 2 capital

 

$

476,580

$

466,036

 

Total capital

 

$

3,084,939

$

2,897,356

 

Total capital ratio

 

12.9

%

13.2

%

 

Classified assets to Tier 1 capital plus allowance for credit losses:

 

Classified assets

 

$

216,000

$

242,101

Divided by:

 

Tier 1 capital (6) (9)

 

2,608,359

2,431,320

Plus: Allowance for credit losses

 

160,409

152,717

Total Tier 1 capital plus allowance for credit losses

 

$

2,768,768

$

2,584,037

 

Classified assets to Tier 1 capital plus allowance (8) (9)

 

7.8

%

9.4

%

 

(6), (7), (8), (9) See Non-GAAP Financial Measures footnotes.

 

Non-GAAP Financial Measures Footnotes

(1)

We believe these non-GAAP measurements provide a useful indication of the cash generating capacity of the Company.

(2)

We believe this non-GAAP measurement is a key indicator of the earnings power of the Company.

(3)

We believe this non-GAAP ratio provides a useful metric to measure the operating efficiency of the Company.

(4)

We believe this non-GAAP ratio provides an important metric with which to analyze and evaluate financial condition and capital strength.

(5)

We believe this non-GAAP measurement improves the comparability to other institutions that have not engaged in acquisitions that resulted in recorded goodwill and other intangibles.

(6)

Under the current guidelines of the Federal Reserve and the Federal Deposit Insurance Corporation, common equity Tier 1 capital consists of common stock, retained earnings, and minority interests in certain subsidiaries, less most other intangible assets.

(7)

Common equity Tier 1 is often expressed as a percentage of risk-weighted assets. Under the risk-based capital framework, a bank's balance sheet assets and credit equivalent amounts of off-balance sheet items are assigned to one of the risk categories defined under new capital guidelines. The aggregated dollar amount in each category is then multiplied by the risk weighting assigned to that category. The resulting weighted values from each category are added together and this sum is the risk-weighted assets total that, as adjusted, comprises the denominator (risk-weighted assets) of the common equity Tier 1 ratio. Common equity Tier 1 is divided by the risk-weighted assets to determine the common equity Tier 1 ratio. We believe this non-GAAP ratio provides an important metric with which to analyze and evaluate financial condition and capital strength.

(8)

We believe this non-GAAP ratio provides an important regulatory metric to analyze asset quality.

(9)

Current quarter is preliminary until Call Report is filed.

Contacts:

Western Alliance Bancorporation
Dale Gibbons, 602-952-5476

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