Shares of Western Alliance Bancorporation (WAL -1.57%) soared 44.3% in 2019, according to data provided by S&P Global Market Intelligence, with most of the market-beating gains occurring late in the year. Investors were caught off guard early in the year by the Federal Reserve's surprise U-turn on interest rates, but the company's performance put those concerns to rest as the year went on.
Western Alliance, which is based in Arizona and also has operations in California and Nevada, was among the bank stocks hit early in the year by an unexpected dovish turn by the Federal Reserve. Western Alliance is seen as an ideal bank to own in a rising interest rate environment thanks to its focus on niche markets, including providing banking services to local governments, homeowners' associations, and hotel franchises.
The Fed raised rates four times in 2018, but in 2019, it unexpectedly hit the brakes on rising rates and instead started a round of cuts.
Western Alliance's quarterly results proved that investors had nothing to worry about. The company generated impressive deposit growth in the first quarter and followed up later in the year with record results. In October, CEO Kenneth A. Vecchione told investors that loan growth was offsetting net interest margin compression, allowing the bank to continue to increase net interest income.
Vecchione in October saw no reason to believe momentum was slowing. Western Alliance is sticking with its guidance for $600 million in loan growth per quarter, fully funded by deposit growth. Assuming this is the case, the bank says net interest income will continue to rise despite the challenging rate environment.
Western Alliance has been an investor favorite because the bank's model should support loan and profit growth throughout the cycle. Its results in 2019 helped reaffirm that the model works.