At its core, banking is a simple business: pay customers for their deposits, collect interest from loans to borrowers, and keep the profit. Many investors have focused lately on the biggest banking institutions in the nation, as they've benefited greatly from reduced regulation and favorable conditions. But for Western Alliance Bancorporation (NYSE:WAL), regional exposure to California, Nevada, and Arizona has given the bank plenty of opportunities to cash in on strong local growth trends.
Coming into the bank's fourth-quarter financial report, Western Alliance shareholders were looking to see continued healthy performance from the financial institution. Western Alliance once again managed to deliver on its potential and sees continued good results for the year to come. Let's look more closely at Western Alliance and what its results say about its future.
All systems go for Western Alliance
Western Alliance's fourth-quarter results were consistent with what investors have seen from the bank in recent periods. Net operating revenue weighed in at $223.3 million, up 5% from the third quarter of 2017 and in line with what most of those following the stock had expected. Net income climbed 8%, to $89.3 million, and that worked out to earnings of $0.85 per share, topping the consensus forecast among investors for $0.83 per share on the bottom line.
Most of Western Alliance's fundamental metrics were sound. Operating pre-provision net revenue, which is the bank's favored measure of top-line success, came in up 4%. Total loans jumped by more than $570 million over the three-month period, to $15.09 billion, while deposits were up by a much less dramatic $68 million, to $16.97 billion. Net interest margin levels continued to rise, reaching 4.73%.
In a few areas, Western Alliance saw mixed conditions. Nonperforming assets fell to just 0.36% of assets, down from 0.42%, but charge-offs climbed slightly, from 0.01% last quarter to 0.04%. Even so, allowances for credit losses added up to just 0.93% of gross loans, improving slightly from the year-earlier levels. The bank's operating-efficiency ratio worsened slightly, to 40.7%, but that was still below what Western Alliance had posted throughout the early part of 2017.
Capitalization levels at the bank were encouraging. Return on tangible common equity hit 18.8%, up more than three-fifths of a percentage point from the previous quarter. Tier 1 common equity ratios stayed stable, at 10.4%.
CEO Robert Sarver was pleased to celebrate a strong year. "The year 2017 ended as expected for Western Alliance," Sarver said, "with outstanding results for our shareholders." The CEO pointed to strong organic loan and deposit growth and expense management in helping to drive the bank's success, noting that the past three years have been instrumental for the institution's growth.
What's ahead for Western Alliance?
Western Alliance has high hopes for the future. As Sarver sees it, "with the benefits of tax reform ahead, coupled with the energy and drive that our bankers bring to clients in our markets, we are well positioned to continue our strong operating performance." A growing workforce has been important for the bank to expand and will continue to help in the years to come. With 1,725 full-time employees, Western Alliance has seen headcount rise by more than 200 workers in the past year.
Western Alliance seems to have well-balanced exposure to its region. Nevada and Arizona have driven growth in several key areas, including gross loan balances over the past three months and pre-tax income throughout 2017. Yet the Northern and Southern California markets offer considerable diversification, and they bring their own opportunities that the bank can capitalize on to maximize overall profit potential.
Western Alliance shareholders didn't have a strong reaction to the report, and the stock moved upward by just a fraction of a percentage point in after-hours trading following the announcement. Banking, in general, is seeing favorable conditions right now, and Western Alliance is doing a good job to tap into favorable trends in the markets it serves.