Too-big-to-fail banks still dominate headlines in the financial industry, and given their massive size, it's easy to understand why. Yet regional banks play a key role in fostering economic growth within their targeted geographical areas, and banks like Western Alliance Bancorporation (NYSE:WAL) have prospered from the success of their regional economies during the current expansion.
Coming into Thursday's third-quarter financial report, Western Alliance shareholders fully believed that the bank would be able to keep building on a strong foundation of growth. Western Alliance's results reflected the favorable conditions in the financial industry right now, and its executives see every reason to be optimistic about the future for the fast-growing financial institution.
Western Alliance has a sunny summer
Western Alliance's third-quarter results were consistent with the bank's performance in previous quarters. Net operating revenue was higher by 17% to $246.9 million, which compared favorably to what most of those following the stock had expected to see. Net income of $111.1 million was higher by an even more impressive 34%, and the resulting earnings of $1.05 per share topped the consensus forecast among investors for $1.03 per share.
From a fundamental perspective, Western Alliance enjoyed considerable gains in key metrics. Loan growth was impressive, with the bank adding $2.21 billion in loans over the course of the year to reach $16.73 billion, a 15% increase. Deposit growth accelerated during the quarter, and a $2 billion increase to deposits brought the new total to $18.91 billion, higher by 12% from year-ago levels.
Measures of performance showed similar strength. Net interest margin improved by 0.07 percentage points to 4.72%, showing the support from the more favorable interest rate environment. Return on assets of 2.07% and return on tangible common equity of 20.57% were both considerably higher from year-earlier levels, and Western Alliance's tangible common equity ratio reached 10%, up from 9.4% in the third quarter of 2017. Tangible book value per share jumped 18% to $20.70, and a modest adverse move in its operating efficiency ratio was one of the bank's only black marks.
Western Alliance saw mixed results with respect to its loan and asset quality. Nonperforming assets declined to just 0.26% of total assets, down from 0.42% a year ago. However, charge-offs jumped to 0.08%, up from just 0.01%. Although the bank has avoided loans that are more than 90 days past due, loans past due by 30 to 89 days more than doubled to $9.4 million.
CEO Ken Vecchione was happy with the bank's overall results. "Western Alliance posted another solid quarter of earnings and balance sheet growth," Vecchione said. "Our strong commitment and deep relationship with our clients helps foster an environment where addressing their needs aligns well with our growth expectations." The CEO also noted that deposit growth exceeded loan growth over the past three months, indicating Western Alliance's access to valuable capital.
What's ahead for Western Alliance?
Western Alliance remained confident about its future. "Our financial results have steadily climbed quarter-over-quarter," Vecchione noted, "which has us well-positioned as we head into the final quarter of 2018."
From a regional perspective, Western Alliance remains well balanced. Arizona and Nevada brought in the bulk of the company's net income, with the two California regional segments lagging behind. Among its key lines of business, the technology and innovation segment contributed the most to the bank's bottom line, with homeowners association services and hotel franchise financing also showing the value of Western Alliance's exposure to key niche financing markets. Total loan exposure remains largest to industries including resort property companies as well as in the lines of corporate finance and mortgage warehouse lending.
Western Alliance shareholders weren't especially surprised by the report, and the stock barely moved in after-hours trading Thursday night following the announcement. But with the share price at its lowest levels of 2018, value investors might want to look more closely at Western Alliance to see whether market participants are underestimating the bank's prospects for the remainder of 2018 and beyond.