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Why Shares of Western Alliance Are Up Today

By Lou Whiteman – Apr 17, 2020 at 2:00PM

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The bank's earnings came in better than expected despite lower rates and the impact of the pandemic.

What happened

Shares of Western Alliance Bancorporation (WAL -2.45%) climbed more than 10% on Friday following the regional lender's first-quarter earnings announcement. Western Alliance, as expected, is feeling the pressure from the COVID-19 pandemic, but the bank appears to be holding up pretty well.

So what

After markets closed Thursday, the bank reported first-quarter earnings of $0.83 per share, beating the $0.71 consensus, despite revenue that at $285.4 million came in about $1 million below expectations.

The earnings number would have been higher if not for Western Alliance boosting its provision for credit losses, but the bank is hardly alone in taking that step. Western Alliance said nonperforming assets accounted for 0.33% of total assets in the first quarter, up from 0.26% during the same three months of 2019.

A banker talks with two customers.

Image source: Getty Images.

Shares are down 45% year to date, in part because the bank is viewed as being more susceptible to falling rates than many other financial institutions. Net interest margin for the quarter was 4.22%, compared with 4.39% in the first quarter of 2019, but the bank was able to bring down its operating efficiency ratio (a measure of how well it controls costs) by 200 basis points year over year to 41.8%.

The report did include some bad news for investors. Western Alliance said that because of the pandemic, it is pausing its stock repurchase program for the remainder of the second quarter to preserve cash.

Now what

The pandemic, and an economic downturn that might follow, will no doubt have an impact on Western Alliance results. But in the statement announcing earnings, CEO Kenneth A. Vecchione said his company is well positioned for whatever is to come.

"We arrive here uniquely prepared to address what's ahead -- at the end of 2019, the company had $3.3 billion in total regulatory capital and strong tangible common equity," Vecchione said. "Further, our robust and diverse deposit sources support our liquidity position."

It's going to be hard for Western Alliance or any other bank stock to break out in this environment, but shareholders can sleep soundly knowing that Western Alliance is well prepared to survive the current downturn.

Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool recommends Western Alliance Bancorp. The Motley Fool has a disclosure policy.

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