The last two months of 2018 were tough for banks across the nation. Fears of a recession and an end to rising long-term interest rates suddenly threw a wrench into the bullish case for expanding net interest income, and regional banks like Western Alliance Bancorporation (NYSE:WAL) saw their share prices take a dive.

Coming into Thursday's fourth-quarter financial report, Western Alliance shareholders had hoped that solid financial results from the bank would help to restore confidence in its growth trajectory. The numbers that Western Alliance reported did the trick, and that's put the stock back on course toward a full recovery as 2019 proceeds.

Welder working on metal sculpture with Alliance Bank name incorporated into it.

Image source: Western Alliance.

Western Alliance keeps picking up steam

Western Alliance's fourth-quarter results supported the bank's fundamental strength. Net operating revenue came in at $258.2 million, up nearly 16% from year-ago levels and nearly matching what most investors had expected to see on the bank's top line. Net income rose by a third, to $119.1 million, and that produced earnings of $1.13 per share, topping the consensus forecast among those following the stock for $1.07 per share.

Most of Western Alliance's numbers looked solid. Loans were up $2.62 billion, to come in at $17.71 billion, a rise of more than 17%. Deposit growth was somewhat slower at 13% on a year-over-year basis, but it still added up to $19.18 billion on deposit for the bank. Internal returns improved, with return on assets of 2.13% and return on tangible common equity of 21.2%.

Financial strength and credit-quality metrics stayed pretty good, as well, with tangible common equity staying in double-digit territory, at 10.2%. Nonperforming assets made up just 0.20% of total assets, down from year-earlier levels. Net loan charge-offs came in at 0.08%, consistent with the third quarter of 2018 three months earlier, and net interest margin stayed favorable at 4.72%.

CEO Ken Vecchione kept his comments short and sweet. "Western Alliance again posted strong financial performance," Vecchione said, pointing to sequential annualized loan growth of 23% and a strong gain in net revenue. The CEO went on to say, "I am pleased with the company's performance and the momentum we carry into 2019.

Can Western Alliance keep recovering?

The key to understanding regional banks is to focus in on the particular economic conditions in the region in question. That way, you won't get tripped up by incorrectly assuming that good times for the U.S. economy as a whole automatically translate into success in a regional bank's home territory.

For Western Alliance, regional performance looked good. The company said that all of its regional segments, except for northern California, saw loan growth during the quarter, with the best gains in Nevada. However, on the deposit side, there was weakness throughout California and Arizona, with only the Nevada market seeing a modest gain in deposits over the three-month period. Pretax income levels were also generally favorable, with Arizona weighing on performance over the past three months while Nevada led the way higher over the course of the full year.

Looking at Western Alliance's various segments, a lot of the increase in loans came from its hotel franchise finance, technology and innovation, and catch-all other business lines segments. Deposit growth came largely from technology and innovation, as well as the homeowners association division, and those segments also did well from a pretax profit standpoint over the course of the full year in 2018.

Overall, Western Alliance shareholders seemed satisfied with the results, and the stock was higher by 4% in after-hours trading following the announcement. As fears of recession start to fade, investors are looking more favorably at financial stocks again. Those who are looking for regional exposure to the West Coast will want to take a close look at Western Alliance.

Check out the latest Western Alliance earnings call transcript.

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