News Details

PHOENIX--(BUSINESS WIRE)-- Western Alliance Bancorporation (NYSE:WAL) (the "Company") announced today its financial results for the third quarter 2016.

Third Quarter 2016 Highlights:

• Net income of $67.1 million, compared to $61.6 million for the second quarter 2016, and $55.9 million for the third quarter 2015
• Earnings per share of $0.64, inclusive of $0.02 in acquisition / restructure expense, compared to $0.60 per share in the second quarter 2016, inclusive of $0.02 in acquisition / restructure expense, and $0.55 per share in the third quarter 2015
• Total loans of $13.03 billion, up $156 million from June 30, 2016, and up $2.25 billion (including $1.28 billion from the hotel franchise finance ("HFF") loan portfolio purchase on April 20, 2016) from September 30, 2015
• Total deposits of $14.44 billion, up $242 million from June 30, 2016, and up $2.83 billion from September 30, 2015, of which more than half was due to increases in non-interest bearing demand deposits
• Net interest margin of 4.55%, compared to 4.63% in the second quarter 2016, and 4.59% in the third quarter 2015
• Net operating revenue of $183.2 million, representing quarter-over-quarter growth of $11.0 million, and year-over-year growth of 25.6%, or $37.3 million. Operating non-interest expense of $82.4 million, representing quarter-over-quarter growth of $4.6 million, and year-over-year growth of 14.2%, or $10.2 million¹
• Operating pre-provision net revenue of $100.8 million, up 6.7% from $94.5 million in the second quarter 2016, and up 36.7% from $73.7 million in the third quarter 2015¹
• Efficiency ratio of 43.0%, flat from the second quarter 2016, and an improvement from 46.8% in the third quarter 2015¹
• Nonperforming assets (nonaccrual loans and repossessed assets) decreased to 0.53% of total assets, from 0.54% at June 30, 2016, and 0.76% at September 30, 2015
• Annualized net charge-offs (recoveries) to average loans outstanding of 0.04%, compared to (0.01)% in the second quarter 2016, and compared to (0.08)% in the third quarter 2015
• Tangible common equity ratio of 9.3%, compared to 9.1% at June 30, 2016, and 8.9% at September 30, 2015¹
• Stockholders' equity of $1.86 billion, an increase of $61 million from June 30, 2016 and an increase of $274 million from September 30, 2015 as a result of net income and the at-the-market ("ATM") common stock issuances during this period
• Tangible book value per share, net of tax, of $14.84, an increase of 4.1% from $14.25 at June 30, 2016, and an increase of 25.1% from $11.86 at September 30, 2015¹

¹ See Reconciliation of Non-GAAP Financial Measures.

Financial Performance

“Western Alliance had another consistent quarter of record performance, with operating earnings per share of 66 cents, up 20% from the 55 cents in the same quarter last year,” remarked Robert Sarver, Chairman and CEO of Western Alliance Bancorporation. “Our operating efficiency held at an impressive 43.0%, and asset quality remains strong with net charge-offs of 0.04% and non-performing assets of 0.53%, essentially unchanged from the second quarter. Tangible book value per share increased a solid 4.1% to $14.84 and capital levels climbed with a tangible common equity ratio of 9.3% at quarter end. We are also pleased with the earnings performance and credit quality of our newly acquired hotel franchise finance portfolio.”

Income Statement

Net interest income was $172.5 million in the third quarter 2016, an increase of $8.8 million from $163.7 million in the second quarter 2016, and an increase of $35.1 million, or 25.6%, compared to the third quarter 2015. The Company’s net interest margin decreased in the third quarter 2016 to 4.55%, compared to 4.63% in the second quarter 2016, and from 4.59% in the third quarter 2015. The decrease in net interest margin for the current quarter compared to the second quarter 2016 primarily relates to an increase in interest expense resulting from the issuance of long-term subordinated debt in June 2016. Net interest income in the third quarter 2016 includes $8.8 million of total accretion income from acquired loans, compared to $8.2 million in the second quarter 2016, and $7.0 million in the third quarter 2015.

Operating non-interest income was $10.7 million for the third quarter 2016, compared to $8.6 million for the second quarter 2016, and $8.5 million for the third quarter 2015.¹ The increase in operating non-interest income for the current quarter compared to the second quarter 2016 primarily related to an increase in SBA / warrant income. The increase year-over-year relates to an increase in SBA / warrant income and service charges.

Net operating revenue was $183.2 million for the third quarter 2016, an increase of $11.0 million, or 6.4%, compared to $172.2 million for the second quarter 2016, and an increase of $37.3 million, or 25.6%, compared to $145.9 million for the third quarter 2015.¹

Operating non-interest expense was $82.4 million for the third quarter 2016, compared to $77.8 million for the second quarter 2016, and $72.2 million for the third quarter 2015.¹ The primary driver of the increase in operating non-interest expense in the third quarter 2016 compared to the second quarter 2016 is increased salaries and employee benefits related to increased headcount and variable incentive compensation linked to business performance. The increase year-over-year relates primarily to an increase in salaries and employee benefits due to increased headcount and operating costs to support the growth in the business. The Company’s operating efficiency ratio¹ on a tax equivalent basis was 43.0% for both the third quarter 2016 and the second quarter 2016, an improvement from 46.8% for the third quarter 2015.

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 2016, the Company’s operating PPNR was $100.8 million, up 6.7% from $94.5 million in the second quarter 2016, and up 36.7% from $73.7 million in the third quarter 2015.¹ The non-operating items¹ for the third quarter 2016 consist primarily of acquisition / restructure expenses of $2.7 million related to HFF and system conversion costs.

The Company had 1,520 full-time equivalent employees and 48 offices at September 30, 2016, compared to 1,415 employees and 47 offices at September 30, 2015.

¹ See Reconciliation of Non-GAAP Financial Measures.

Balance Sheet

Gross loans totaled $13.03 billion at September 30, 2016, an increase of $156 million from $12.88 billion at June 30, 2016, and an increase of $2.25 billion from $10.79 billion at September 30, 2015. The year-over-year increase is comprised of $1.28 billion from HFF as of April 20, 2016 and the remainder from organic loan growth. Consistent with 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. At September 30, 2016, the allowance for credit losses was 0.94% of total loans, compared to 0.95% at June 30, 2016, and 1.09% at September 30, 2015. The allowance for credit losses as a percent of total loans, adjusted to include credit discounts on acquired loans, was 1.37% at September 30, 2016, compared to 1.42% at June 30, 2016, and 1.32% at September 30, 2015.

Deposits totaled $14.44 billion at September 30, 2016, an increase of $242 million from $14.20 billion at June 30, 2016, and an increase of $2.83 billion from $11.61 billion at September 30, 2015. The increase from both the prior quarter and from September 30, 2015 is the result of organic deposit growth. Non-interest bearing deposits were $5.62 billion at September 30, 2016, compared to $5.28 billion at June 30, 2016, and $4.08 billion at September 30, 2015. Non-interest bearing deposits comprised 38.9% of total deposits at September 30, 2016, compared to 37.1% at June 30, 2016, and 35.1% at September 30, 2015. The proportion of savings and money market balances to total deposits decreased to 41.3% at September 30, 2016 from 42.3% at June 30, 2016, and increased from 40.2% at September 30, 2015. Certificates of deposit as a percentage of total deposits were 11.0% at September 30, 2016, compared to 11.6% at June 30, 2016, and 15.8% at September 30, 2015. The Company’s ratio of loans to deposits was 90.2% at September 30, 2016, compared to 90.7% at June 30, 2016, and 92.9% at September 30, 2015.

Borrowings decreased to zero at September 30, 2016 and June 30, 2016 from $300 million at September 30, 2015. The decrease from the prior year is due to the payoff of short-term FHLB advances. Qualifying debt increased to $383 million at September 30, 2016 from $382 million at June 30, 2016, and from $207 million at September 30, 2015. The year-over-year increase is primarily due to the issuance of $175 million of subordinated debt during the second quarter 2016.

Stockholders’ equity at September 30, 2016 was $1.86 billion, compared to $1.80 billion at June 30, 2016, and $1.58 billion at September 30, 2015. The increase from the prior year relates primarily to the ATM common stock issuances and net income for the respective period.

At September 30, 2016, tangible common equity, net of tax, was 9.3% of tangible assets¹ and total capital was 13.1% of risk-weighted assets. The Company’s tangible book value per share¹ was $14.84 at September 30, 2016, up 25.1% from $11.86 at September 30, 2015.

Total assets increased to $17.04 billion at September 30, 2016 from $16.73 billion at June 30, 2016, and increased 22.1% from $13.96 billion at September 30, 2015. The increase in total assets from September 30, 2015 relates primarily to HFF, organic loan growth, and an increase in investment securities resulting from increased deposits.

Asset Quality

The provision for credit losses was $2.0 million for the third quarter 2016 and $2.5 million for the second quarter 2016, and was zero for the third quarter 2015. Net charge-offs (recoveries) in the third quarter 2016 were $1.2 million, or 0.04%, of average loans (annualized), compared to $(0.4) million, or (0.01)%, in the second quarter 2016, and compared to $(2.0) million, or (0.08)%, for the third quarter 2015.

Nonaccrual loans increased $0.9 million to $40.6 million during the quarter and decreased $7.1 million from September 30, 2015. Loans past due 90 days and still accruing interest totaled $2.8 million at September 30, 2016, compared to $7.0 million at June 30, 2016, and $5.6 million at September 30, 2015. Loans past due 30-89 days and still accruing interest totaled $18.4 million at quarter end, an increase from $3.5 million at June 30, 2016, and a decrease from $19.6 million at September 30, 2015.

Repossessed assets totaled $49.6 million at quarter end, a decrease of $0.2 million from $49.8 million at June 30, 2016, and a decrease of $8.1 million from $57.7 million at September 30, 2015. Adversely graded loans and non-performing assets totaled $334.9 million at quarter end, a decrease of $28.7 million from $363.6 million at June 30, 2016, and a decrease of $32.3 million from $367.2 million at September 30, 2015.

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 12.3% at September 30, 2016, from 15.1% at December 31, 2015, and from 17.2% at September 30, 2015.¹

¹ See Reconciliation of Non-GAAP Financial Measures.

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, First Independent Bank, Torrey Pines Bank, and Bridge Bank.

The Company's National Business Lines ("NBL") segments provide specialized banking services to niche markets. With the purchase of the HFF loan portfolio, management has created a new HFF operating segment, which is now included as one of the Company's NBL reportable segments. The Company's other NBL reportable segments include Homeowner Associations ("HOA") Services, 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 HOA Services NBL corresponds to the Alliance Association Bank division. The newly created HFF NBL includes the hotel franchise loan portfolio purchased from GE on April 20, 2016. The operations of Public and Nonprofit Finance are combined into one reportable segment. The Technology & Innovation NBL includes the operations of Equity Fund Resources, the Life Sciences Group, the Renewable Resource Group, and Technology Finance. The Other NBLs segment consists of the operations of Corporate Finance, Mortgage Warehouse Lending, and Resort Finance.

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 operating segments include loan and deposit growth, asset quality, and pre-tax income.

The regional segments reported gross loan balances of $7.54 billion at September 30, 2016, an increase of $25 million during the quarter, and an increase of $182 million during the last 12 months. Arizona and Southern California had loan growth during the quarter of $40 million and $32 million, respectively, which was offset by decreases of $67 million and $30 million, respectively, in Northern California and Nevada. The growth in loans during the last 12 months was driven by increases of $232 million in Arizona and $125 million in Southern California, which were partially offset by decreases of $92.9 million and $82.1 million, respectively in Northern California and Nevada. Total deposits for the regional segments were $11.40 billion, an increase of $65 million during the quarter, and an increase of $2.20 billion during the last 12 months. Arizona and Nevada generated increased deposits during the quarter of $131 million and $89 million, respectively, which was partially offset by a decrease of $149 million in Southern California. Each of the regional segments generated increased deposits during the last 12 months, with Arizona contributing the largest increase of $1.47 billion, followed by Nevada and Southern California with increases of $382 million and $317 million, respectively.

Pre-tax income for the regional segments was $80.7 million for the three months ended September 30, 2016, an increase of $6.9 million from the three months ended June 30, 2016, and an increase of $18.5 million from the three months ended September 30, 2015. Arizona, Northern California, and Nevada had the largest increases in pre-tax income of $2.4 million, $2.2 million, and $2.0 million, respectively, compared to the three months ended June 30, 2016. With the exception of Northern California, all regional segments had increases in pre-tax income from the three months ended September 30, 2015, with Arizona and Nevada contributing the largest increases of $11.5 million and $4.5 million, respectively. For the nine months ended September 30, 2016, the regional segments reported total pre-tax income of $220.5 million, an increase of $57.8 million compared to the nine months ended September 30, 2015. All regional segments had increases in pre-tax income, with Arizona and Northern California contributing the largest increases of $24.7 million and $15.0 million, respectively.

The NBL segments reported gross loan balances of $5.47 billion at September 30, 2016, an increase of $189 million during the quarter, and an increase of $2.08 billion during the last 12 months. The increase in loans for the NBL segments compared to the prior quarter and to the same quarter in the prior year relates primarily to the Other NBL and HFF segments, which increased loans by $175 million and $48 million, respectively, at quarter end. During the last 12 months, the increases were driven by the HFF, Other NBL, and Technology & Innovation segments, which increased loans by $1.31 billion, $490 million, and $253 million, respectively. Total deposits for the NBL segments were $2.88 billion, an increase of $206 million during the quarter, and an increase of $850 million during the last 12 months. The Technology & Innovation and HOA Services segments increased deposits by $104 million and $102 million, respectively, during the quarter. The increase of $850 million during the last 12 months is the result of growth in the HOA Services and Technology & Innovation segments of $614 million and $236 million, respectively.

Pre-tax income for the NBL segments was $38.0 million for the three months ended September 30, 2016, an increase of $3.0 million from the three months ended June 30, 2016, and an increase of $11.2 million from the three months ended September 30, 2015. HOA Services and Technology & Innovation had the largest increases in pre-tax income of $1.1 million and $0.8 million, respectively, compared to the three months ended June 30, 2016. The HFF and HOA segments had the largest increases in pre-tax income of $9.5 million and $3.3 million, respectively, from the three months ended September 30, 2015. Pre-tax income for the NBLs for the nine months ended September 30, 2016 totaled $99.5 million. The largest increases in pre-tax income compared to the nine months ended September 30, 2015 were in the Technology & Innovation and HFF segments, which increased $24.4 million and $19.7 million, respectively, as a result of the HFF purchase and the Bridge Bank acquisition.

Conference Call and Webcast

Western Alliance Bancorporation will host a conference call and live webcast to discuss its third quarter 2016 financial results at 12:00 p.m. ET on Monday, October 24, 2016. Participants may access the call by dialing 1-888-317-6003 and using passcode 6172554 or via live audio webcast using the website link http://services.choruscall.com/links/wal161021.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. ETOctober 24th through 9:00 a.m. ETNovember 24th by dialing 1-877-344-7529 passcode: 10093456.

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 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.

Early Adoption of Accounting Standards

During the first quarter 2016, the Company elected to early adopt Accounting Standards Update ("ASU") 2016-09, Improvements to Employee Share-Based Payment Accounting. The amendments in this ASU require that all excess tax benefits and tax deficiencies be recognized as income tax expense or benefit in the income statement rather than as additional paid-in capital as required under previous generally accepted accounting principles. Due to the early adoption of ASU 2016-09, during the three months ended March 31, 2016, the Company recognized a $3.9 million tax benefit as a reduction of income tax expense (that previously would have been reflected as additional paid-in capital). For the nine months ended September 30, 2016, the Company recognized a tax benefit of $4.1 million as a result of the new guidance.

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, and future economic performance, 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, 2015 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 $17 billion in assets, top-performing Western Alliance Bancorporation (NYSE:WAL) is one of the fastest-growing bank holding companies in the U.S. and recognized as #10 on the Forbes 2016 “Best Banks in America” list. Its primary subsidiary, Western Alliance Bank, is the go-to bank for business and succeeds with local teams of experienced bankers who deliver superior service and a full spectrum of deposit, lending, treasury management, international banking and online banking products and services. Western Alliance Bank operates full-service banking divisions: Alliance Bank of Arizona, Bank of Nevada, Bridge Bank, First Independent Bank and Torrey Pines Bank. The bank also serves business customers through a robust national platform of specialized financial services including Corporate Finance, Equity Fund Resources, Hotel Franchise Finance, Life Sciences Group, Mortgage Warehouse Lending, Public and Nonprofit Finance, Renewable Resource Group, Resort Finance, Technology Finance and Alliance Association Bank. For more information, visit westernalliancebancorporation.com.