News Details

PHOENIX--(BUSINESS WIRE)-- Western Alliance Bancorporation (NYSE:WAL) (the "Company") announced today its financial results for the second quarter 2015.

• Net income of $34.7 million and earnings per share of $0.39
• Operating net income of $43.5 million and earnings per share of $0.49, excluding merger charges, debt valuation adjustments, gains on other real estate¹, and operating performance of Bridge Capital Holdings ("Bridge")
• Bridge merger, completed on June 30, 2015, increased total assets, gross loans, and deposits by $2.20 billion, $1.45 billion, and $1.74 billion, respectively

Second Quarter 2015 Highlights:

• Pre-tax, pre-provision operating earnings of $59.9 million, up from $54.5 million in the first quarter 2015, and up 26.3% from $47.4 million in the second quarter 2014¹
• Net operating revenue of $114.4 million, constituting year-over-year growth of 15.1%, or $15.0 million, compared to an increase in operating expenses of 4.9%, or $2.6 million¹
• Net interest margin of 4.41%, compared to 4.35% in the first quarter 2015, and 4.39% in the second quarter 2014
• Efficiency ratio of 44.6%, compared to 46.7% in the first quarter 2015, and 49.3% in the second quarter 2014¹
• Total loans of $10.36 billion, including $1.45 billion acquired from Bridge and loans held for sale of $39 million, with organic loan growth for the quarter of $95 million and $515 million for the first six months of 2015
• Total deposits of $11.41 billion, including $1.74 billion acquired from Bridge, and organic deposit growth flat during the second quarter and $734 million for the first six months of 2015
• Nonperforming assets (nonaccrual loans and repossessed assets) decreased to 0.88% of total assets, from 1.11% at March 31, 2015, and from 1.23% at June 30, 2014
• Net loan recoveries (annualized) to average loans outstanding of 0.13%, compared to 0.06% in the first quarter 2015, and 0.09% in the second quarter 2014
• Qualifying debt of $208 million, an increase of $168 million from March 31, 2015 due to the issuance of $150 million in subordinated debt and $11 million in junior subordinated debt assumed in the Bridge merger
• Common Equity Tier 1 ratio of 9.1% and Total Capital ratio of 12.2%, compared to 9.0% and 11.3%, respectively, at March 31, 2015 under Basel III federal regulatory standards, which became effective on January 1, 2015
• Stockholders' equity of $1.51 billion, an increase of $463 million from March 31, 2015, including $431 million related to the Bridge acquisition, and an increase of $557 million from June 30, 2014
• Tangible book value per share, net of tax, of $11.25, an increase of 4.9% from $10.72 at March 31, 2015, and an increase of 24.7% from $9.02 at June 30, 2014¹

Financial Performance

“Once again, Western Alliance delivered strong performance with key metrics driving record operating earnings and efficiency in the second quarter,” commented Robert Sarver, Chief Executive Officer and Chairman of Western Alliance Bancorporation. “Our earnings power, as measured by pre-tax, pre-provision income was up $12.5 million, or 26.3%, from a year ago. Our operating efficiency, at under 45%, is among the best in the industry. We also experienced our sixth consecutive quarter of net loan recoveries.”

Sarver continued, “We are very pleased to welcome our new colleagues from Bridge Bank. Bridge provides Western Alliance with a strong Northern California presence and impressive lending capabilities, particularly in the technology space, as well as new fee revenue and low-cost deposit generation opportunities. Combining these new opportunities with our existing performance momentum, we are confident that our combined company will continue to deliver superior results for our shareholders.”

Acquisition of Bridge Capital Holdings

Results include the acquisition of Bridge on June 30, 2015, which increased total assets, gross loans, and deposits by $2.20 billion, $1.45 billion, and $1.74 billion, respectively. However, the acquisition had no effect on the Company's results of operations, except for merger charges incurred related to the acquisition. Pursuant to accounting guidance, acquired net assets are recorded at estimated fair value as of the acquisition date. The estimated fair value of certain net assets are preliminary and are subject to measurement period adjustments. The results of operations from Bridge will be included in the Company's results beginning on July 1, 2015.

Income Statement

Net interest income was $108.7 million in the second quarter 2015, an increase of $5.6 million from $103.1 million in the first quarter 2015, and an increase of $14.8 million, or 15.8%, compared to the second quarter 2014. The Company’s net interest margin increased in the second quarter 2015 to 4.41%, compared to 4.35% in the first quarter 2015, and 4.39% in the second quarter 2014.

Operating non-interest income was $5.7 million for both the second and first quarters of 2015, compared to $5.5 million for the second quarter 2014.¹

Net operating revenue was $114.4 million for the second quarter 2015, compared to $108.8 million for the first quarter 2015, and an increase of $15.0 million compared to $99.4 million for the second quarter 2014.¹

Operating non-interest expense was $54.6 million for the second quarter 2015, compared to $54.2 million for the first quarter 2015, and $52.0 million for the second quarter 2014.¹ The Company’s operating efficiency ratio¹ on a tax equivalent basis was 44.6% for the second quarter 2015, an improvement from 46.7% for the first quarter 2015, and from 49.3% for the second quarter 2014.

The Company views its pre-tax, pre-provision operating earnings 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 2015, the Company’s pre-tax, pre-provision operating earnings were $59.9 million, up from $54.5 million in the first quarter 2015, and up 26.3% from $47.4 million in the second quarter 2014.¹

On June 29, 2015, Western Alliance Bank ("WAB"), the operating subsidiary of the Company, issued $150.0 million of subordinated debt at a fixed rate of 5.00% until July 15, 2020. After July 15, 2020 and through maturity or early redemption of the subordinated notes, the notes will bear interest at a floating rate of 3.20% above 90 day LIBOR. The subordinated debt is due July 15, 2025 and was recorded net of related issuance costs of $1.6 million. Given the pricing of 90 day LIBOR plus 3.20%, the Company reviewed the methodology for calculating the estimated fair value of its outstanding junior subordinated debt, which was priced at 30 day LIBOR plus 5.96% as of March 31, 2015 under fair value option accounting. Considering the significantly lower spread of WAB’s newly issued subordinated debt, that the Company’s debt is junior in subordination, and that the debt was issued by the parent company rather than the insured depository, the Company adjusted the spread for valuation purposes to 30 day LIBOR plus 4.69%, which is between the 90 day LIBOR plus 3.20% rate achieved on the WAB subordinated debt and 30 day LIBOR plus 5.96% rate that was previously used. This spread reduction resulted in a non-cash, non-recurring debt valuation loss of $7.7 million. This charge had no effect on regulatory capital.

The other significant non-operating items for the second quarter 2015 consisted of merger / restructure expense of $7.8 million incurred in connection with the acquisition of Bridge and a net gain on sales and valuations of repossessed and other assets of $1.2 million.

The Company had 1,411 full-time equivalent employees and 48 offices at June 30, 2015, compared to 1,112 employees and 39 offices at June 30, 2014.

Balance Sheet

Gross loans totaled $10.36 billion at June 30, 2015, including $1.45 billion acquired from Bridge and loans held for sale of $39 million, and organic loan growth of $515 million from December 31, 2014. At June 30, 2015, the allowance for credit losses was 1.11% of total loans, compared to 1.27% at March 31, 2015, and 1.40% at June 30, 2014, reflecting an improvement in the Company’s asset quality profile and historical losses. Consistent with GAAP, the allowance for credit losses on acquired loans is not carried over in an acquisition as acquired loans are recorded at fair value, which discounts the loans based on expected future cash flows. The allowance for credit losses as a percent of total loans, adjusted to include credit discounts on acquired loans, was 1.35% at June 30, 2015, compared to 1.45% at December 31, 2014.¹

The acquisition of Bridge added $260 million of goodwill and $15 million of core deposit intangible assets, which are preliminary amounts that are subject to measurement period adjustments over the next year. Goodwill was allocated to the Northern California and Central Business Lines segments based on the balances of loans and deposits as of June 30, 2015 and core deposit intangible assets were allocated to these segments based on core deposit balances. Total goodwill and core deposit intangible assets allocated to the Northern California and Central Business Lines segments were $155 million and $119 million, respectively, as of June 30, 2015.

Deposits totaled $11.41 billion at June 30, 2015, including $1.74 billion acquired from Bridge, and organic deposit growth of $734 million from December 31, 2014. Non-interest bearing deposits were $3.92 billion at June 30, 2015, compared to $2.66 billion at March 31, 2015, and $2.28 billion at June 30, 2014. Non-interest bearing deposits comprised 34.4% of total deposits at June 30, 2015, compared to 27.5% at March 31, 2015, and 26.9% at June 30, 2014. The increase in the proportion of the Company's non-interest bearing deposits was due to the Bridge acquisition as 68.3% of Bridge's deposits were non-interest bearing. The proportion of savings and money market accounts decreased to 41.5% from 42.6% at March 31, 2015, and from 42.9% at June 30, 2014. Certificates of deposit as a percentage of total deposits were 15.3% at June 30, 2015, compared to 20.2% at March 31, 2015, and 20.8% at June 30, 2014. The Company’s ratio of loans to deposits was 90.8% at June 30, 2015, compared to 91.3% at March 31, 2015, and 89.1% at June 30, 2014.

Borrowings totaled $70 million at June 30, 2015, a decrease of $206 million from $275 million at March 31, 2015, and a decrease of $268 million from $338 million at June 30, 2014. The decrease from the prior quarter is due to the payoff of FHLB advances, resulting in a loss on extinguishment of debt of $0.1 million. Qualifying debt increased to $208 million at June 30, 2015, from $41 million at March 31, 2015, primarily due to the issuance of $150 million of subordinated debt and $11 million in junior subordinated debt assumed from Bridge.

Stockholders’ equity at June 30, 2015 was $1.51 billion, compared to $1.05 billion at March 31, 2015, and $958 million at June 30, 2014. The merger with Bridge increased stockholders' equity by $431 million, primarily due to the issuance of 12.5 million shares of the Company's common stock.

At June 30, 2015, tangible common equity, net of tax, was 8.7% of tangible assets¹ and total capital under Basel III federal regulatory standards was 12.2% of risk-weighted assets. The Company’s tangible book value per share¹ was $11.25 at June 30, 2015, up 24.7% from June 30, 2014.

Total assets increased 19.7% to $13.47 billion at June 30, 2015, from $11.25 billion at March 31, 2015, and increased 34.4% from $10.02 billion at June 30, 2014. The increase in total assets was primarily related to the merger with Bridge, which increased total assets by $2.20 billion.

Asset Quality

There was no provision for credit losses for the second quarter 2015, compared to $0.7 million in the first quarter 2015, and $0.5 million for the second quarter 2014. Net loan recoveries in the second quarter 2015 were $3.0 million, or 0.13% of average loans (annualized), compared to $1.2 million, or 0.06%, in the first quarter 2015, respectively, and $1.5 million, or 0.09%, for the second quarter 2014, respectively.

Nonaccrual loans decreased $1.3 million to $59.4 million during the quarter, including Bridge. Loans past due 90 days and still accruing interest totaled $8.3 million at June 30, 2015, compared to $3.7 million at March 31, 2015, and $3.0 million at June 30, 2014. Loans past due 30-89 days and still accruing interest totaled $4.0 million at quarter end, a decrease from $14.1 million at March 31, 2015, and a decrease from $5.1 million at June 30, 2014.

As the Company’s asset quality improved and its capital increased, the ratio of classified assets to Tier I capital plus the allowance for credit losses, a common regulatory measure of asset quality, improved to 18.5% at June 30, 2015, from 20.3% at March 31, 2015, and from 24.5% at June 30, 2014.¹

Segment Highlights

The Company's reportable segments are aggregated primarily based on geographic location, services offered, and markets served. As a result of the acquisition of Bridge on June 30, 2015, former Bridge activities were allocated between the newly formed Northern California segment and the Central Business Lines ("CBL") segment. As a substantial portion of Bridge's balance sheet is generated from nationally-focused business lines, the Technology and Energy Infrastructure lines of Bridge's business are included in the CBL segment. Substantially all of the remaining assets and liabilities are included in the Northern California segment. The Southern California segment represents legacy Western Alliance operations in California, excluding two branches located in northern California, which are now included in the Northern California segment.

The Arizona, Nevada, Southern California, and Northern California segments provide full service banking and related services to their respective markets. The Company's CBL segment provides specialized banking services to niche markets and, as of June 30, 2015, includes the Technology and Energy Infrastructure operations of Bridge. These CBLs are managed centrally and are broader in geographic scope compared to our other segments, though still predominately located within our core market areas. The Corporate & Other segment consists of corporate-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 CBL segments include loan and deposit growth, asset quality, and pre-tax income.

Arizona reported a gross loan balance of $2.43 billion at June 30, 2015, an increase of $91 million during the last six months, and an increase of $302 million during the last 12 months. Deposits were $2.37 billion at June 30, 2015, an increase of $192 million during the last six months, and an increase of $255 million during the last 12 months. Pre-tax income was $17.8 million and $17.3 million for the three months ended June 30, 2015 and 2014, respectively, and $33.6 million and $29.9 million for the six months ended June 30, 2015 and 2014, respectively.

Nevada reported a gross loan balance of $1.76 billion at June 30, 2015, an increase of $93 million during the last six months, and an increase of $79 million during the last 12 months. Deposits were $3.32 billion at June 30, 2015, an increase of $86 million during the last six months, and an increase of $129 million during the last 12 months. Pre-tax income was $20.5 million and $17.7 million for the three months ended June 30, 2015 and 2014, respectively, and $37.2 million and $34.2 million for the six months ended June 30, 2015 and 2014, respectively.

Southern California reported a gross loan balance of $1.66 billion at June 30, 2015, an increase of $107 million during the last six months, and an increase of $145 million during the last 12 months. Deposits were $1.95 billion at June 30, 2015, an increase of $202 million during the last six months, and an increase of $281 million during the last 12 months. Pre-tax income was $12.5 million and $12.6 million for the three months ended June 30, 2015 and 2014, respectively, and $24.4 million and $21.9 million for the six months ended June 30, 2015 and 2014, respectively.

Northern California reported a gross loan balance of $1.08 billion at June 30, 2015, an increase of $879 million during the last six months, and an increase of $898 million during the last 12 months. Deposits were $1.55 billion at June 30, 2015, an increase of $966 million during the last six months, and an increase of $1.16 billion during the last 12 months. Results of operations for Northern California includes the Company's two previously existing northern California branch operations and does not include the results of operations of Bridge. Pre-tax income was $2.8 million and $1.4 million for the three months ended June 30, 2015 and 2014, respectively, and $5.3 million and $2.5 million for the six months ended June 30, 2015 and 2014, respectively.

CBL, which includes the Technology and Energy Infrastructure operations of Bridge, reported a gross loan balance of $3.39 billion at June 30, 2015, an increase of $798 million during the last six months, and an increase of $1.44 billion during the last 12 months. Deposits were $1.95 billion at June 30, 2015, an increase of $999 million during the last six months, and an increase of $1.06 billion during the last 12 months. Pre-tax income was $14.0 million and $6.8 million for the three months ended June 30, 2015 and 2014, respectively, and $27.3 million and $12.1 million for the six months ended June 30, 2015 and 2014, respectively.

Attached to this press release is summarized financial information for the quarter ended June 30, 2015.

Conference Call and Webcast

Western Alliance Bancorporation will host a conference call and live webcast to discuss its second quarter 2015 financial results at 12:00 p.m. ET on Monday, July 27, 2015. Participants may access the call by dialing 1-888-317-6003 and using passcode 7737999 or via live audio webcast using the website link http://services.choruscall.com/links/wal150724.html. The webcast is also available via the Company’s website at www.westernalliancebancorp.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. ETJuly 27th through 9:00 a.m. ETAugust 27th by dialing 1-877-344-7529 passcode: 10068074.

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 accounting principles generally accepted in the United States (“GAAP”) and non-GAAP based financial measures, which are used where management believes it 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.

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 acquisition of Bridge Capital Holdings, the performance of the combined company, and any guidance, outlook or expectations relating to our business, financial and operating results, and future economic performance. 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, 2014 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; 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 $10 billion in assets, top-performing Western Alliance Bancorporation (NYSE:WAL) is one of the fastest growing bank holding companies in the U.S. Its primary subsidiary, Western Alliance Bank, is the go-to bank for business and succeeds with local teams of experienced bankers who deliver superior, personalized services and a full spectrum of deposit, lending, treasury management and online banking products and services. Western Alliance Bank operates five full-service banking divisions: Alliance Bank of Arizona, Bank of Nevada, Bridge Bank, First Independent Bank and Torrey Pines Bank. The Company also serves business customers through a robust national platform of specialized financial services including Corporate Finance, Equipment Finance, Public Finance, Resort Finance, Technology Finance, Energy Infrastructure Group, Mortgage Warehouse Lending and Alliance Association Bank. For more information visit westernalliancebancorp.com.

¹ See Reconciliation of Non-GAAP Financial Measures beginning on page 18.