The American West holds a lot of appeal to many people around the world, and from a business perspective, the region has seen extremely favorable times recently. Western Alliance Bancorporation (NYSE:WAL) serves its home state of Arizona as well as key markets in California and Nevada, and by emphasizing important niches within the lending industry, Western Alliance has stood out from the crowd and has opportunities many financial institutions can only wish for.
Coming into the bank's third-quarter financial report, Western Alliance shareholders fully expected that their company would be able to sustain the positive momentum it had built up throughout the first part of the year. The results that the regional bank reported show the strength of the area and point to good prospects ahead for Western Alliance. Let's take a closer look at how Western Alliance did and whether it can continue to do well in the years to come.
Western Alliance gets a lift
Western Alliance's third-quarter results featured familiar growth trends, although not all of the bank's results lived up to expectations. Net operating revenue rose by 4% to $211.5 million, which was somewhat weaker than what many of those following the stock had wanted to see. However, net income jumped a healthier 24% to $82.9 million, and that produced earnings of $0.79 per share. That was $0.01 higher than the consensus forecast among investors.
The pace of gains in many key metrics for Western Alliance slowed but was still solid. Total loans weighed in at $14.52 billion, up by nearly 4% from year-ago levels. Total deposits climbed by $875 million to hit $16.9 billion, helping to lift shareholder equity by roughly 4%. Net interest margin also widened, hitting 4.65%, and the bank's operating efficiency ratio reached the 40% mark, reflecting the efforts Western Alliance has made to keep costs under control.
Other measures of the bank's success were also favorable on a year-over-year basis. Return on tangible common equity rose by more than two-thirds of a percentage point to 18.18%, and the bank's Tier 1 common equity ratio jumped by six-tenths of a point to 10.4%. Credit quality measures were mixed, with charge-offs improving to just 0.01%, and nonperforming assets dropping to just 0.42% from 0.53% in last year's third quarter. Allowances for credit losses fell slightly as well, reflecting greater confidence going forward.
Can Western Alliance keep doing well?
There are few reasons to expect that Western Alliance's results won't remain strong for the foreseeable future, at least in CEO Robert Sarver's eyes. "The economy continues to steadily expand," Sarver said, "and our clients are growing their businesses. Our highly experienced bankers have deep local roots and are among the best and brightest in our markets." The CEO pointed to ongoing increases in key financial metrics in keeping up the bank's positive momentum.
Focusing on its various regions, Western Alliance sees plenty of promise. All of its regions except for Nevada experienced loan growth during the quarter, with Northern California leading the way. Total deposits expanded on strong performance from Arizona and Southern California, and on the bottom line strength, in Nevada and Arizona offset decreases in pre-tax income in the two parts of California. From a business-line perspective, all of Western Alliance's lines of business saw loan growth, and deposits were generally stronger across the board. By continuing to stress the potential in areas like public and nonprofit finance, homeowners' associations, technology and innovation, and hotel franchise finance, Western Alliance has its fingers on the pulse of the engine that drives its coverage area's economy.
Western Alliance shareholders didn't immediately react to the news, and the stock didn't move dramatically in after-hours trading following the announcement. As long as the Western U.S. remains a stronghold for economic activity, Western Alliance will be in a good position to capture its fair share of business.