Market Overview

Western Alliance Bancorporation Reports Third Quarter 2019 Financial Results

Share:

Western Alliance Bancorporation (NYSE:WAL):

THIRD QUARTER 2019 FINANCIAL RESULTS

Net income

 

Earnings per share

 

Net interest margin2

 

Efficiency ratio

 

Book value per

common share

$127.4 million

 

$1.24

 

4.41%

 

43.1%

 

$28.48

CEO COMMENTARY:

"Western Alliance continues to deliver strong shareholder value and produced another record quarter with third quarter results that generated $127.4 million in net income and earnings per share of $1.24, representing an 18% increase in earnings per share from a year ago," commented Kenneth Vecchione, Chief Executive Officer. "Thoughtful balance sheet growth continues to be at the forefront of our business plan as demonstrated by our third consecutive quarter of deposit growth of more than $1 billion and loan growth of over $900 million during the quarter. Our asset quality remains stable and we closed out the quarter with $0.6 million of net loan recoveries. Our healthy loan origination volume coupled with a reduction in deposit costs overcame a net interest margin compression of 18 basis points to produce net interest income growth of 18.4%, on a linked quarter annualized basis. Our consistent, broad-based results, combined with our commitment to distribute excess capital to shareholders through stock repurchases and dividends, positions the Company to finish the year with solid shareholder results."

LINKED-QUARTER BASIS

YEAR-OVER-YEAR

 

 

FINANCIAL HIGHLIGHTS:

 

  • Net income and earnings per share of $127.4 million and $1.24 compared to $122.9 million and $1.19, respectively
  • Net income of $127.4 million and earnings per share of $1.24, up 14.6% and 18.1%, from $111.1 million and $1.05, respectively
  • Net operating revenue1 of $282.5 million, an increase of 5.7%, or $15.2 million, compared to an increase in operating non-interest expenses1 of 6.7%, or $7.7 million
  • Net operating revenue1 of $282.5 million, an increase of 14.4%, or $35.6 million, compared to an increase in operating non-interest expenses1 of 16.7%, or $17.5 million
  • Operating pre-provision net revenue1 of $159.9 million, up $7.4 million from $152.5 million
  • Operating pre-provision net revenue1 of $159.9 million, up $18.1 million from $141.9 million
  • Effective tax rate of 18.30%, compared to 16.76%
  • Effective tax rate of 18.30%, compared to 6.32%

 

 

FINANCIAL POSITION RESULTS:

 

  • Total loans of $20.2 billion, up $903 million, or 18.8% annualized
  • Increase in total loans of $3.4 billion, or 20.4%
  • Total deposits of $22.4 billion, up $1.0 billion, or 18.7% annualized
  • Increase in total deposits of $3.5 billion, or 18.7%
  • Stockholders' equity of $2.9 billion, up $72 million
  • Increase in stockholders' equity of $435 million

 

 

LOANS AND ASSET QUALITY:

 

  • Nonperforming assets (nonaccrual loans and repossessed assets) to total assets of 0.25%, compared to 0.27%
  • Nonperforming assets to total assets of 0.25%, compared to 0.26%
  • Annualized net loan (recoveries) charge-offs to average loans outstanding of (0.01)% compared to 0.03%
  • Annualized net loan (recoveries) charge-offs2 to average loans outstanding of (0.01)%, compared to 0.08%

 

 

KEY PERFORMANCE METRICS:

 

  • Net interest margin of 4.41% compared to 4.59%
  • Net interest margin2 of 4.41%, compared to 4.68%
  • Return on average assets and on tangible common equity1 of 1.94% and 19.41%, compared to 2.05% and 19.72%, respectively
  • Return on average assets2 and on tangible common equity1,2 of 1.94% and 19.41%, compared to 2.05% and 20.40%, respectively
  • Tangible common equity ratio1 of 10.1%, compared to 10.2%
  • Tangible common equity ratio1 of 10.1%, compared to 10.0%
  • Tangible book value per share1, net of tax, of $25.60, an increase of 3.9% from $24.65
  • Tangible book value per share1, net of tax, of $25.60, an increase of 23.7% from $20.70
  • Operating efficiency ratio1 of 42.4%, compared to 42.0%
  • Operating efficiency ratio1 of 42.4%, compared to 41.5%

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 $266.4 million in the third quarter 2019, an increase of $11.7 million from $254.7 million in the second quarter 2019, and an increase of $32.4 million, or 13.8%, compared to the third 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 third quarter 2019 includes $2.7 million of total accretion income from acquired loans, compared to $4.6 million in the second quarter 2019, and $3.3 million in the third quarter 2018.

The Company's net interest margin in the third quarter 2019 was 4.41%, a decrease from 4.59% in the second quarter 2019 and 4.68% in the third quarter 2018.

Operating non-interest income was $16.1 million for the third quarter 2019, compared to $12.6 million for the second quarter 2019, and $12.9 million for the third quarter 2018.1 The increase in operating non-interest income from the third quarter 2018 primarily relates to an increase in income from warrants.

Net operating revenue was $282.5 million for the third quarter 2019, an increase of $15.2 million, compared to $267.3 million for the second quarter 2019, and an increase of $35.6 million, or 14.4%, compared to $246.9 million for the third quarter 2018.1

Operating non-interest expense was $122.6 million for the third quarter 2019, compared to $114.8 million for the second quarter 2019, and $105.0 million for the third quarter 2018.1 The Company's operating efficiency ratio1 was 42.4% for the third quarter 2019, compared to 42.0% in the second quarter 2019, and 41.5% for the third quarter 2018.

Income tax expense was $28.5 million for the third quarter 2019, compared to $24.8 million for the second quarter 2019, and $7.5 million for the third quarter 2018. Income tax expense for the third quarter 2018 includes the effect of a carryback election.

Net income was $127.4 million for the third quarter 2019, an increase of $4.4 million from $122.9 million for the second quarter 2019, and an increase of $16.3 million, or 14.6%, from $111.1 million for the third quarter 2018. Earnings per share was $1.24 for the third quarter 2019, compared to $1.19 for the second quarter 2019, and $1.05 for the third 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 third quarter 2019, the Company's operating PPNR was $159.9 million, up $7.4 million from $152.5 million in the second quarter 2019, and up $18.1 million from $141.9 million in the third quarter 2018.1 Non-operating income1 for the third quarter 2019 consisted of a net gain on sales of investment securities of $3.2 million and net unrealized gains on assets measured at fair value of $0.2 million. Non-operating expense1 for the third quarter 2019 consisted of a net loss on sales and valuations of repossessed and other assets of $3.4 million.

The Company had 1,814 full-time equivalent employees and 47 offices at September 30, 2019, compared to 1,806 employees and 47 offices at June 30, 2019 and 1,795 employees and 47 offices at September 30, 2018.

1

See reconciliation of Non-GAAP Financial Measures.

Balance Sheet

Gross loans totaled $20.2 billion at September 30, 2019, an increase of $903 million from $19.3 billion at June 30, 2019, and an increase of $3.4 billion from $16.7 billion at September 30, 2018. The increase from the prior quarter was driven by an increase of $346 million in CRE, non-owner occupied loans, $282 million in residential real estate loans, and $275 million in commercial and industrial loans. These increases were partially offset by a decrease of $55 million in construction and land development loans. From September 30, 2018, loans increased across all loan types, with the largest increases in commercial and industrial loans of $1.2 billion, CRE, non-owner occupied loans of $1.1 billion, and residential real estate loans of $1.0 billion. At September 30, 2019, the allowance for credit losses to gross loans held for investment was 0.82%, compared to 0.83% at June 30, 2019, and 0.90% at September 30, 2018. At September 30, 2019, the allowance for credit losses to total organic loans was 0.85%, compared to 0.87% at June 30, 2019, and 0.97% at September 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 $7.5 million at September 30, 2019, compared to $10.6 million at June 30, 2019, and $17.2 million at September 30, 2018.

Deposits totaled $22.4 billion at September 30, 2019, an increase of $1.0 billion from $21.4 billion at June 30, 2019, and an increase of $3.5 billion from $18.9 billion at September 30, 2018. The increase from the prior quarter was driven by an increase of $1.2 billion from savings and money market accounts and $78 million in non-interest bearing demand deposits. These increases were offset by a decrease of $221 million from certificates of deposit. From September 30, 2018, deposits increased across all deposit types, with the largest increases in savings and money market accounts of $2.0 billion, non-interest bearing demand deposits of $741 million, interest-bearing demand deposits of $531 million, and certificates of deposit of $261 million. Non-interest bearing deposits were $8.8 billion at September 30, 2019, compared to $8.7 billion at June 30, 2019, and $8.0 billion at September 30, 2018. Non-interest bearing deposits comprised 39.0% of total deposits at September 30, 2019, compared to 40.5% at June 30, 2019, and 42.4% at September 30, 2018. The proportion of savings and money market balances to total deposits was 40.4%, compared to 36.8% at June 30, 2019, and 37.3% at September 30, 2018. Interest-bearing demand deposits as a percentage of total deposits were 11.2% at September 30, 2019, compared to 11.8% at June 30, 2019, and 10.5% at September 30, 2018. Certificates of deposit as a percentage of total deposits were 9.4% at September 30, 2019, compared to 10.9% at June 30, 2019, and 9.8% at September 30, 2018. The Company's ratio of loans to deposits was 89.8% at September 30, 2019, compared to 89.8% at June 30, 2019, and 88.5% at September 30, 2018.

Qualifying debt totaled $389 million at September 30, 2019, compared to $387 million at June 30, 2019, and $359 million at September 30, 2018.

Stockholders' equity was $2.9 billion at September 30, 2019 and June 30, 2019, compared to $2.5 billion at September 30, 2018. The increase in stockholders' equity from September 30, 2018 is primarily a function of net income, partially offset by share repurchases and dividends to shareholders. 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 third quarter 2019, the Company repurchased 1.0 million shares of its common stock at a weighted average price of $43.63, for a total of $43.6 million. During the nine months ended September 30, 2019, the Company repurchased a total of 2.7 million shares of its common stock, representing approximately 3% of the Company's outstanding shares. Shares were repurchased at a weighted average price of $42.25, for a total of $115.5 million. During the third quarter 2019, the Company's Board of Directors approved a quarterly cash dividend of $0.25 per share. The Company made its first dividend payment to shareholders totaling $25.7 million on August 30, 2019.

At September 30, 2019, tangible common equity, net of tax, was 10.1% of tangible assets

View Comments and Join the Discussion!
 
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com