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Western Alliance Bancorporation Reports Third Quarter 2018 Financial Results

Western Alliance Bancorporation (NYSE:WAL):

THIRD QUARTER 2018 FINANCIAL RESULTS

Net income

Earnings per share

Net interest margin

Efficiency ratio

Book value per
common share

$111.1 million$1.054.72%46.6%$23.51

CEO COMMENTARY

“Western Alliance posted another solid quarter of earnings and balance sheet growth. Our strong commitment and deep relationship with our clients helps foster an environment where addressing their needs aligns well with our growth expectations,” said Chief Executive Officer, Kenneth Vecchione.

“Loan growth of $595 million was fully funded by deposit growth of $821 million, while net interest margin expanded two basis points to 4.72%. Asset quality was stable with net loan losses of 0.08% of total loans during the quarter and nonperforming assets of 0.26% of total assets. Our financial results have steadily climbed quarter-over-quarter, with net income of $111.1 million and earnings per share of $1.05 for the quarter, which has us well-positioned as we head into the final quarter of 2018.”

LINKED-QUARTER BASIS YEAR-OVER-YEAR

FINANCIAL HIGHLIGHTS

  • Net income and earnings per share of $111.1 million and $1.05 compared to $104.7 million and $0.99, respectively
  • Net income of $111.1 million and earnings per share of $1.05, compared to $82.8 million and $0.79, respectively

  • Net operating revenue of $246.9 million constituting growth of 3.6%, or $8.7 million, compared to an increase in operating non-interest expenses of 2.3%, or $2.3 million1
  • Net operating revenue of $246.9 million constituting year-over-year growth of 16.6%, or $35.2 million, compared to an increase in operating non-interest expenses of 18.0%, or $16.0 million1

  • Operating pre-provision net revenue of $141.9 million, up $6.4 million from $135.5 million1

  • Operating pre-provision net revenue of $141.9 million, up $19.2 million from $122.7 million 1
  • Effective tax rate of 6.32%, compared to 19.48%, as management re-assessed its tax planning strategies and made a carryback election
  • Effective tax rate of 6.32%, compared to 29.64%, due to the effect of the Tax Cuts and Jobs Act and carryback election

FINANCIAL POSITION RESULTS

  • Total loans of $16.73 billion, up $595 million, or 14.7% annualized
  • Increase in total loans of $2.21 billion, or 15.2%

  • Total deposits of $18.91 billion, up $821 million, or 18.2% annualized

  • Increase in total deposits of $2.00 billion, or 11.9%
  • Stockholders' equity of $2.49 billion, up $97 million
  • Increase in stockholders' equity of $343 million

LOANS AND ASSET EQUALITY

  • Nonperforming assets (nonaccrual loans and repossessed assets) to total assets of 0.26%, compared to 0.29%
  • Nonperforming assets to total assets of 0.26%, compared to 0.42%
  • Annualized net loan charge-offs to average loans outstanding of 0.08%, compared to 0.07%

  • Annualized net loan charge-offs to average loans outstanding of 0.08%, compared to 0.01%

KEY PERFORMANCE METRICS

  • Net interest margin of 4.72%, compared to 4.70%
  • Net interest margin of 4.72%, compared to 4.65%

  • Return on average assets and on tangible common equity1 of 2.07% and 20.57%, compared to 2.02% and 20.41%, respectively
  • Return on average assets and on tangible common equity1 of 2.07% and 20.57%, compared to 1.71% and 18.18%, respectively

  • Tangible common equity ratio of 10.0%, compared to 9.9% 1
  • Tangible common equity ratio of 10.0%, compared to 9.4% 1

  • Tangible book value per share, net of tax, of $20.70, an increase from $19.78 1

  • Tangible book value per share, net of tax, of $20.70, an increase of 18.1% from $17.53 1
  • Operating efficiency ratio of 41.5%, compared to 42.1% 1
  • Operating efficiency ratio of 41.5%, compared to 40.0% 1

1 See reconciliation of Non-GAAP Financial Measures.

Income Statement

Net interest income was $234.0 million in the third quarter 2018, an increase of $9.9 million from $224.1 million in the second quarter 2018, and an increase of $32.5 million, or 16.1%, compared to the third quarter 2017. As acquired loans are recorded at fair value in an acquisition, purchase discounts on these acquired loans are recorded and accreted into interest income based on expected future cash flows over the life of the loans and may be accelerated upon prepayment of acquired loans. Net interest income in the third quarter 2018 includes $3.3 million of total accretion income from acquired loans, compared to $5.1 million in the second quarter 2018, and $7.5 million in the third quarter 2017.

The Company’s net interest margin in the third quarter 2018 was 4.72%, an increase from 4.70% in the second quarter 2018, and from 4.65% in the third quarter 2017. Adjusting net interest margin to include the effects of the Tax Cuts and Jobs Act ("TCJA"), which reduced the tax equivalent adjustment from tax-exempt securities and loans, results in adjusted net interest margin1 of 4.53% for the third quarter 2017.

Operating non-interest income was $12.9 million for the third quarter 2018, compared to $14.1 million for the second quarter 2018, and $10.1 million for the third quarter 2017.1 The decrease in operating non-interest income from the second quarter 2018 primarily relates to a decrease in income from equity investments. The increase in operating non-interest income for the third quarter 2018 compared to the same quarter in the prior year is due primarily to increases in lending related income of $1.3 million, card income of $0.6 million, and income from equity securities of $0.5 million.

Net operating revenue was $246.9 million for the third quarter 2018, an increase of $8.7 million, compared to $238.2 million for the second quarter 2018, and an increase of $35.2 million, or 16.6%, compared to $211.7 million for the third quarter 2017.1

Operating non-interest expense was $105.0 million for the third quarter 2018, compared to $102.7 million for the second quarter 2018, and $89.0 million for the third quarter 2017.1 The Company’s operating efficiency ratio1 on a tax equivalent basis was 41.5% for the third quarter 2018, compared to 42.1% for the second quarter 2018, and 40.0% for the third quarter 2017. Adjusting the operating efficiency ratio1 to include the effects of the lower statutory corporate federal tax rate would result in an operating efficiency ratio of 41.0% for the third quarter 2017.

Income tax expense was $7.5 million for the third quarter 2018, compared to $25.3 million for the second quarter 2018, and $34.9 million for the third quarter 2017. Income tax expense for the second and third quarters of 2018 includes the effect of the Tax Cuts and Jobs Act, which lowered the statutory corporate tax rate from 35% to 21%. In addition, income tax expense for the third quarter 2018 includes the effect of management’s election to carryback to prior tax years the 2017 federal net operating losses ("NOL"), which resulted from the acceleration of deductions and deferral of revenue at the end of 2017. In the carryback taxable years to which the NOL will apply, the federal income tax rate was higher compared to those years to which the NOL would apply if it were carried forward.

Net income was $111.1 million for the third quarter 2018, an increase of $6.4 million from $104.7 million for the second quarter 2018, and an increase of $28.3 million, or 34.1%, from $82.8 million for the third quarter 2017. Earnings per share was $1.05 for the third quarter 2018, compared to $0.99 for the second quarter 2018, and $0.79 for the third quarter 2017.

The Company views its operating pre-provision net revenue ("PPNR") as a key metric for assessing the Company’s earnings power, which it defines as net operating revenue less operating non-interest expense. For the third quarter 2018, the Company’s operating PPNR was $141.9 million, up from $135.5 million in the second quarter 2018, and up 15.6% from $122.7 million in the third quarter 2017.1 The non-operating income items1 for the third quarter 2018 consisted of net losses on sales of investment securities of $7.2 million and net unrealized losses on assets measured at fair value of $1.2 million. The non-operating or non-recurring expense items1 for the third quarter 2018 consisted of a $7.6 million charitable contribution and a $1.2 million adjustment related to the Company's 401(k) plan and other miscellaneous items. These amounts were partially offset by a net gain on sales and valuations of repossessed and other assets of $0.1 million.

The Company had 1,795 full-time equivalent employees and 47 offices at September 30, 2018, compared to 1,773 employees and 47 offices at June 30, 2018, and 1,673 employees and 47 offices at September 30, 2017.

1 See reconciliation of Non-GAAP Financial Measures.

Balance Sheet

Gross loans totaled $16.73 billion at September 30, 2018, an increase of $595 million from $16.14 billion at June 30, 2018, and an increase of $2.21 billion from $14.52 billion at September 30, 2017. The increase from the prior quarter was driven by an increase of $282 million in residential real estate loans, $209 million in commercial and industrial loans, and $129 million in construction and land development loans. From September 30, 2017, loans increased across all loan types, with the largest increases in commercial and industrial loans of $750 million, residential real estate loans of $450 million, and construction and land development loans of $441 million. At September 30, 2018, the allowance for credit losses to gross loans held for investment was 0.90%, compared to 0.91% at June 30, 2018, and 0.94% at September 30, 2017. At September 30, 2018, the allowance for credit losses to total organic loans was 0.97%, compared to 0.99% at June 30, 2018, and 1.06% at September 30, 2017. The Company defines its organic loans as those loans that have not been acquired in a transaction accounted for as a business combination.

Consistent with accounting principles generally accepted in the United States ("GAAP"), the allowance for credit losses is not carried over in an acquisition because acquired loans are recorded at fair value, which discounts the loans based on expected future cash flows. Credit discounts on acquired loans are included as a reduction to gross loans. These discounts totaled $17.2 million at September 30, 2018, compared to $19.7 million at June 30, 2018, and $32.8 million at September 30, 2017.

Deposits totaled $18.91 billion at September 30, 2018, an increase of $821 million from $18.09 billion at June 30, 2018, and an increase of $2.00 billion from $16.90 billion at September 30, 2017. The increase from the prior quarter was driven by an increase of $590 million from savings and money market accounts and $114 million from demand deposits. From September 30, 2017, deposits increased across all deposit types, with the largest increases in savings and money market accounts of $759 million, demand deposits of $572 million, and non-interest bearing demand deposits of $406 million. Non-interest bearing deposits were $8.01 billion at September 30, 2018, compared to $7.95 billion at June 30, 2018, and $7.61 billion at September 30, 2017. Non-interest bearing deposits comprised 42.4% of total deposits at September 30, 2018, compared to 43.9% at June 30, 2018, and 45.0% at September 30, 2017. The proportion of savings and money market balances to total deposits was 37.3%, compared to 35.8% at June 30, 2018, and 37.3% at September 30, 2017. Certificates of deposit as a percentage of total deposits were 9.8% at September 30, 2018, compared to 10.0% at June 30, 2018, and 9.4% at September 30, 2017. The Company’s ratio of loans to deposits was 88.5% at September 30, 2018, compared to 89.2% at June 30, 2018, and 85.9% at September 30, 2017.

Borrowings were zero at September 30, 2018, compared to $75 million at June 30, 2018, and zero at September 30, 2017. The change in borrowings from the prior quarter is due to fluctuations in FHLB overnight advances.

Qualifying debt totaled $359 million at September 30, 2018, compared to $361 million at June 30, 2018, and $373 million at September 30, 2017.

Stockholders’ equity at September 30, 2018 was $2.49 billion, compared to $2.39 billion at June 30, 2018, and $2.15 billion at September 30, 2017.

At September 30, 2018, tangible common equity, net of tax, was 10.0% of tangible assets1 and total capital was 13.5% of risk-weighted assets. The Company’s tangible book value per share1 was $20.70 at September 30, 2018, up 18.1% from September 30, 2017.

Total assets increased 3.8% to $22.18 billion at September 30, 2018, from $21.37 billion at June 30, 2018, and increased 11.3% from $19.92 billion at September 30, 2017. The increase in total assets from the prior year relates primarily to organic loan growth.

Asset Quality

The provision for credit losses was $6.0 million for the third quarter 2018, compared to $5.0 million for both the second quarter 2018 and the third quarter 2017. Net loan charge-offs in the third quarter 2018 were $3.1 million, or 0.08% of average loans (annualized), compared to $2.6 million, or 0.07%, in the second quarter 2018, and $0.4 million, or 0.01%, in the third quarter 2017.

Nonaccrual loans increased $2.9 million to $36.9 million during the quarter and decreased $18.1 million during past twelve months. There were no loans past due 90 days and still accruing interest at each of the periods ended September 30, 2018 and June 30, 2018. At September 30, 2017, loans past due 90 days and still accruing interest totaled less than $0.1 million. Loans past due 30-89 days and still accruing interest totaled $9.4 million at quarter end, an increase from $1.5 million at June 30, 2018, and an increase from $5.2 million at September 30, 2017.

Repossessed assets totaled $20.0 million at September 30, 2018, a decrease of $7.5 million from $27.5 million at June 30, 2018, and a decrease of $9.0 million from $29.0 million at September 30, 2017. Adversely graded loans and non-performing assets totaled $358.3 million at September 30, 2018, a decrease of $10.2 million from $368.5 million at June 30, 2018, and a decrease of $47.9 million from $406.2 million at September 30, 2017.

As the Company’s capital increased, the ratio of classified assets to Tier I capital plus the allowance for credit losses, a common regulatory measure of asset quality, was 10.2% at September 30, 2018, compared to 10.1% at June 30, 2018, and 10.8% at September 30, 2017.1

1 See reconciliation of Non-GAAP Financial Measures.

Segment Highlights

The Company's reportable segments are aggregated primarily based on geographic location, services offered, and markets served. The Company's regional segments, which include Arizona, Nevada, Southern California, and Northern California provide full service banking and related services to their respective markets. The operations from the regional segments correspond to the following banking divisions: Alliance Bank of Arizona, Bank of Nevada and First Independent Bank, Torrey Pines Bank, and Bridge Bank.

The Company's National Business Lines ("NBL") segment provides specialized banking services to niche markets. The Company's NBL reportable segments include Homeowner Associations ("HOA") Services, Hotel Franchise Finance ("HFF"), Public & Nonprofit Finance, Technology & Innovation, and Other NBLs. These NBLs are managed centrally and are broader in geographic scope than our other segments, though still predominately located within our core market areas.

The Corporate & Other segment consists of corporate-related items, income and expense items not allocated to our other reportable segments, and inter-segment eliminations.

Key management metrics for evaluating the performance of the Company's Arizona, Nevada, Southern California, Northern California, and NBL segments include loan and deposit growth, asset quality, and pre-tax income.

The regional segments reported gross loan balances of $8.98 billion at September 30, 2018, an increase of $257 million during the quarter, and an increase of $1.03 billion during the last twelve months. The growth in loans during the quarter was driven by increases across all regional segments, with the largest increases in Southern California and Nevada of $88 million and $86 million, respectively. All regional segments contributed to the growth in loans during the last twelve months. The largest increases were $462 million in Arizona, $251 million in Nevada, and $243 million in Southern California. Total deposits for the regional segments were $13.68 billion, an increase of $562 million during the quarter, and an increase of $485 million during the last twelve months. During the quarter, Southern California and Northern California had the largest increases in deposits of $248 million and $167 million, respectively. During the last twelve months, Northern California and Arizona had increased deposits of $416 million and $134 million, respectively, which were partially offset by a decrease in deposits of $103 million in Nevada.

Pre-tax income for the regional segments was $87.2 million for the three months ended September 30, 2018, an increase of $1.3 million from the three months ended June 30, 2018, and an increase of $1.1 million from the three months ended September 30, 2017. Nevada, Northern California and Southern California had increases in pre-tax income of $1.8 million, $0.5 million, and $0.3 million respectively, compared to the three months ended June 30, 2018, which were partially offset by a decrease of $1.3 million in Arizona. Northern California and Arizona had increases in pre-tax income from the three months ended September 30, 2017 of $3.2 million and $0.7 million, respectively. These increases were partially offset by decreases of $1.9 million and $0.8 million in Nevada and Southern California, respectively. For the nine months ended September 30, 2018, the regional segments reported total pre-tax income of $259.1 million, an increase of $15.9 million compared to the nine months ended September 30, 2017. Arizona and Northern California had increases of $12.4 million and $6.1 million, respectively. These increases were partially offset by decreases of $2.1 million and $0.5 million in Southern California and Nevada, respectively.

The NBL segments reported gross loan balances of $7.75 billion at September 30, 2018, an increase of $335 million during the quarter, and an increase of $1.18 billion during the last twelve months. The largest increase in loans from the prior quarter relates to the Other NBLs segment, which increased loans by $461 million. This increase was partially offset by decreases in the Technology & Innovation and Public & Nonprofit Finance segments, which had decreases in loans from the prior quarter of $99 million and $46 million, respectively. During the last twelve months, the largest drivers of the increase in loans were Other NBLs, HFF, and Technology & Innovation segments, with increases of $970 million, $163 million, and $57 million, respectively. These increases were partially offset by a decrease in Public & Nonprofit Finance of $54 million. Total deposits for the NBL segments were $4.84 billion, an increase of $335 million during the quarter, and an increase of $1.23 billion during the last twelve months. The increase in deposits from the prior quarter primarily relates to the Technology & Innovation segment, which had an increase in deposits of $326 million. The increase of $1.23 billion during the last twelve months is the result of growth in both the Technology & Innovation and HOA Services segments of $860 million and $371 million, respectively.

Pre-tax income for the NBL segments was $51.4 million for the three months ended September 30, 2018, an increase of $2.7 million from the three months ended June 30, 2018, and an increase of $5.8 million from the three months ended September 30, 2017. The increase in pre-tax income from the prior quarter relates to the Technology & Innovation, HOA Services, and Public & Nonprofit Finance segments, which increased by $2.7 million, $1.7 million, and $0.5 million, respectively. These increases were partially offset by decreases in pre-tax income from the Other NBLs and HFF segments, which had decreases of $1.4 million and $0.8 million, respectively. The drivers of the increase in pre-tax income from the same period in the prior year were the Technology & Innovation, HOA Services, and Other NBL segments, which had increases of $5.2 million, $3.0 million, and $2.8 million, respectively. These increases were partially offset by decreases in pre-tax income for the Public & Nonprofit Finance and HFF segments, which decreased by $3.0 million and $2.0 million, respectively. Pre-tax income for the NBL segments for the nine months ended September 30, 2018 totaled $146.8 million, an increase of $21.1 million compared to the nine months ended September 30, 2017. The largest increases were in the Technology & Innovation, Other NBLs, and HOA Services segments. These segments had increases of $11.3 million, $11.1 million, and $6.6 million, respectively. These increases were partially offset by a decrease of $8.6 million in the Public & Nonprofit Finance segment.

Conference Call and Webcast

Western Alliance Bancorporation will host a conference call and live webcast to discuss its third quarter 2018 financial results at 12:00 p.m. ET on Friday, October 19, 2018. Participants may access the call by dialing 1-888-317-6003 and using passcode 7454025 or via live audio webcast using the website link https://services.choruscall.com/links/wa181019.html. The webcast is also available via the Company’s website at www.westernalliancebancorporation.com. Participants should log in at least 15 minutes early to receive instructions. The call will be recorded and made available for replay after 2:00 p.m. ET October 19th through 9:00 a.m. ET November 19th by dialing 1-877-344-7529 passcode: 10124472.

Reclassifications

Certain amounts in the Consolidated Income Statements for the prior periods have been reclassified to conform to the current presentation. The reclassifications have no effect on net income or stockholders’ equity as previously reported.

Use of Non-GAAP Financial Information

This press release contains both financial measures based on GAAP and non-GAAP based financial measures, which are used where management believes them to be helpful in understanding the Company’s results of operations or financial position. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found in this press release. These disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.

Adoption of Accounting Standards

During the first quarter 2018, the Company adopted Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers, ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities and ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.

The amendments in ASU 2014-09 create a common revenue standard and clarify the principles for recognizing revenue that can be applied consistently across various transactions, industries, and capital markets. Although this new accounting guidance brings considerable changes to how many companies account for revenue and disclose revenue-related information, the effect on the Company has not been significant as substantially all of the Company's revenue is generated from interest income related to loans and investment securities, which are not within the scope of this guidance. For the Company's revenue streams that are within the scope of this guidance, the guidance was adopted on January 1, 2018 using the modified retrospective method. Upon adoption, the Company's accounting policies did not change materially as the principles of revenue recognition in the ASU are largely consistent with current practices applied by the Company.

The amendments in ASU 2016-01 require that equity investments be measured at fair value with changes in fair value recognized in net income, rather than accumulated other comprehensive income. Upon adoption of the new accounting guidance, on January 1, 2018, the Company recorded a cumulative-effect adjustment of $0.4 million to decrease accumulated other comprehensive income with a corresponding increase to opening retained earnings. During the nine months ended September 30, 2018, the Company recognized a loss of $3.0 million related to fair value changes in equity securities.

The amendments in ASU 2018-02 allow a reclassification from accumulated other comprehensive income to retained earnings from tax effects resulting from the TCJA so that tax effects of items within other comprehensive income reflect the current tax rate. Previously, the effect of a change in tax laws or rates on deferred tax liabilities and assets were included in income from continuing operations even in situations in which the related income tax effects of items in accumulated other comprehensive income were originally recognized in comprehensive income. Upon adoption of the new accounting guidance, on January 1, 2018, the Company recorded a cumulative-effect adjustment of $0.6 million to decrease accumulated other comprehensive income with a corresponding increase to opening retained earnings.

Cautionary Note Regarding Forward-Looking Statements

This release contains forward-looking statements that relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. Examples of forward-looking statements include, among others, statements we make regarding our expectations with regard to our business, financial and operating results, and future economic performance, including our recent domestic select-service hotel franchise finance loan portfolio acquisition. The forward-looking statements contained herein reflect our current views about future events and financial performance and are subject to risks, uncertainties, assumptions and changes in circumstances that may cause our actual results to differ significantly from historical results and those expressed in any forward-looking statement. Some factors that could cause actual results to differ materially from historical or expected results include, among others: the risk factors discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 as filed with the Securities and Exchange Commission; changes in general economic conditions, either nationally or locally in the areas in which we conduct or will conduct our business; inflation, interest rate, market and monetary fluctuations; increases in competitive pressures among financial institutions and businesses offering similar products and services; higher defaults on our loan portfolio than we expect; changes in management’s estimate of the adequacy of the allowance for credit losses; legislative or regulatory changes or changes in accounting principles, policies or guidelines; supervisory actions by regulatory agencies which may limit our ability to pursue certain growth opportunities, including expansion through acquisitions; additional regulatory requirements resulting from our continued growth; management’s estimates and projections of interest rates and interest rate policy; the execution of our business plan; and other factors affecting the financial services industry generally or the banking industry in particular.

Any forward-looking statement made by us in this release is based only on information currently available to us and speaks only as of the date on which it is made. We do not intend and disclaim any duty or obligation to update or revise any industry information or forward-looking statements, whether written or oral, that may be made from time to time, set forth in this press release to reflect new information, future events or otherwise.

About Western Alliance Bancorporation

With more than $20 billion in assets, Western Alliance Bancorporation (NYSE:WAL) is one of the country’s top-performing banking companies and is ranked #2 on the Forbes 2018 “Best Banks in America” list. Its primary subsidiary, Western Alliance Bank, Member FDIC, is the go-to bank for business and succeeds with local teams of experienced bankers who deliver superior service and a full spectrum of customized loan, deposit and treasury management capabilities. Business clients also benefit from a powerful array of specialized financial services that provide strong expertise and tailored solutions for a wide variety of industries and sectors. A national presence with a regional footprint, Western Alliance Bank operates individually branded, full-service banking divisions with offices in key markets nationwide. For more information, visit westernalliancebank.com

Western Alliance Bancorporation and Subsidiaries
Summary Consolidated Financial Data
Unaudited
Selected Balance Sheet Data:
As of September 30,
20182017Change%
(in millions)
Total assets $ 22,176.1 $ 19,922.2 11.3 %
Gross loans, net of deferred fees 16,732.8 14,521.9 15.2
Securities and money market investments 3,633.7 3,773.6 (3.7 )
Total deposits 18,908.6 16,904.8 11.9
Qualifying debt 359.1 372.9 (3.7 )
Stockholders' equity 2,488.4 2,145.6 16.0
Tangible common equity, net of tax (1) 2,191.3 1,848.8 18.5
Selected Income Statement Data:
For the Three Months Ended September 30,For the Nine Months Ended September 30,
20182017Change%20182017Change%
(in thousands, except per share data)(in thousands, except per share data)
Interest income

$

265,216

$217,836

21.8

%

$

751,515

$

617,054

21.8

%

Interest expense 31,178 16,253 91.8 79,149 43,419 82.3
Net interest income 234,038 201,583 16.1 672,366 573,635 17.2
Provision for credit losses 6,000 5,000 20.0 17,000 12,250 38.8
Net interest income after provision for credit losses 228,038 196,583 16.0 655,366 561,385 16.7
Non-interest income 4,418 10,456 (57.7

)

29,505 31,656 (6.8 )
Non-interest expense 113,841 89,296 27.5 314,538 265,543 18.5
Income before income taxes 118,615 117,743 0.7 370,333 327,498 13.1
Income tax expense 7,492 34,899 (78.5

)

53,631 91,352 (41.3 )
Net income $ 111,123 $ 82,844 34.1 $ 316,702 $ 236,146 34.1
Diluted earnings per share $ 1.05 $ 0.79 32.9 $ 3.00 $ 2.25 33.3
(1) See Reconciliation of Non-GAAP Financial Measures.
NM Changes +/- 100% are not meaningful.
Western Alliance Bancorporation and Subsidiaries
Summary Consolidated Financial Data
Unaudited
Common Share Data:
At or For the Three Months Ended September 30,For the Nine Months Ended September 30,
20182017Change%20182017Change%
Diluted earnings per share $ 1.05 $ 0.79 32.9 % $ 3.00 $ 2.25 33.3 %
Book value per common share 23.51 20.34 15.6
Tangible book value per share, net of tax (1) 20.70 17.53 18.1
Average shares outstanding
(in thousands):
Basic 104,768 104,221 0.5 104,664 104,124 0.5
Diluted 105,448 104,942 0.5 105,398 104,941 0.4
Common shares outstanding 105,865 105,493 0.4
Selected Performance Ratios:
Return on average assets (2) 2.07 % 1.71 % 21.1 % 2.02 % 1.70 % 18.8 %
Return on average tangible common equity (1, 2) 20.57 18.18 13.1 20.47 18.15 12.8
Net interest margin (2) 4.72 4.65 1.5 4.67 4.63 0.9
Operating efficiency ratio - tax equivalent basis (1) 41.5 40.0 3.8 42.1 41.8 0.7
Loan to deposit ratio 88.49 85.90 3.0
Asset Quality Ratios:
Net charge-offs to average loans outstanding (2) 0.08 % 0.01 % NM 0.06 % 0.01 % NM
Nonaccrual loans to gross loans 0.22 0.38 (42.1 )
Nonaccrual loans and repossessed assets to total assets 0.26 0.42 (38.1 )
Allowance for credit losses to gross loans 0.90 0.94 (4.3 )
Allowance for credit losses to nonaccrual loans 406.89 248.07 64.0

Capital Ratios (1):

Sep 30, 2018

Jun 30, 2018

Sep 30, 2017

Tangible common equity (1)

10.0

%

9.9

%

9.4

%

Common Equity Tier 1 (1), (3)

10.9

10.7

10.4

Tier 1 Leverage ratio (1), (3)

11.0

10.8

10.1

Tier 1 Capital (1), (3)

11.3

11.1

10.8

Total Capital (1), (3)

13.5

13.4

13.3

(1) See Reconciliation of Non-GAAP Financial Measures.
(2) Annualized for the three and nine months ended September 30, 2018 and 2017.
(3) Capital ratios for September 30, 2018 are preliminary until the Call Report is filed.
NM Changes +/- 100% are not meaningful.
Western Alliance Bancorporation and Subsidiaries
Condensed Consolidated Income Statements
Unaudited
Three Months Ended September 30,Nine Months Ended September 30,
2018201720182017
(dollars in thousands, except per share data)
Interest income:
Loans $ 234,709 $ 191,096 $ 662,703 $ 547,306
Investment securities 27,239 23,584 81,305 62,327
Other 3,268 3,156 7,507 7,421
Total interest income 265,216 217,836 751,515 617,054
Interest expense:
Deposits 25,266 11,449 59,288 29,506
Qualifying debt 5,794 4,708 16,458 13,539
Borrowings 118 96 3,403 374
Total interest expense 31,178 16,253 79,149 43,419
Net interest income 234,038 201,583 672,366 573,635
Provision for credit losses 6,000 5,000 17,000 12,250
Net interest income after provision for credit losses 228,038 196,583 655,366 561,385
Non-interest income:
Service charges and fees 5,267 5,248 16,684 15,189
Card income 2,138 1,509 6,143 4,517
Income from equity investments 1,440 967 5,417 2,977
Lending related income and gains (losses) on sale of loans, net 1,422 97 3,447 746
Foreign currency income 1,092 756 3,475 2,630
Income from bank owned life insurance 868 975 2,963 2,896
(Loss) gain on sales of investment securities, net (7,232 ) 319 (7,232 ) 907
Unrealized (losses) gains on assets measured at fair value, net (1,212 ) (2,971 ) (1 )
Other 635 585 1,579 1,795
Total non-interest income 4,418 10,456 29,505 31,656
Non-interest expenses:
Salaries and employee benefits 64,762 52,747 188,680 156,640
Legal, professional, and directors' fees 7,907 6,038 21,856 23,324
Occupancy 7,406 7,507 21,671 21,328
Data processing 5,895 4,524 16,688 14,163
Deposit costs 4,848 2,904 11,888 6,778
Insurance 3,712 3,538 11,466 10,355
Business development 1,381 1,439 4,523 4,949
Card expense 1,282 966 3,305 2,558
Loan and repossessed asset expenses 1,230 1,263 2,830 3,639
Marketing 687 776 2,429 2,628
Intangible amortization 398 489 1,195 1,666
Net (gain) loss on sales and valuations of repossessed and other assets (67 ) 266 (1,474 ) (46 )
Other 14,400 6,839 29,481 17,561
Total non-interest expense 113,841 89,296 314,538 265,543
Income before income taxes 118,615 117,743 370,333 327,498
Income tax expense 7,492 34,899 53,631 91,352
Net income $ 111,123 $ 82,844 $ 316,702 $ 236,146
Earnings per share:
Diluted shares 105,448 104,942 105,398 104,941
Diluted earnings per share $ 1.05 $ 0.79 $ 3.00 $ 2.25
Western Alliance Bancorporation and Subsidiaries
Five Quarter Condensed Consolidated Income Statements
Unaudited
Three Months Ended
Sep 30, 2018Jun 30, 2018Mar 31, 2018Dec 31, 2017Sep 30, 2017
(in thousands, except per share data)
Interest income:
Loans $ 234,709 $ 222,035 $ 205,959 $ 200,204 $ 191,096
Investment securities 27,239 27,445 26,621 26,312 23,584
Other 3,268 2,122 2,117 1,943 3,156
Total interest income 265,216 251,602 234,697 228,459 217,836
Interest expense:
Deposits 25,266 19,849 14,173 12,459 11,449
Qualifying debt 5,794 5,695 4,969 4,734 4,708
Borrowings 118 1,950 1,335 237 96
Total interest expense 31,178 27,494 20,477 17,430 16,253
Net interest income 234,038 224,108 214,220 211,029 201,583
Provision for credit losses 6,000 5,000 6,000 5,000 5,000
Net interest income after provision for credit losses 228,038 219,108 208,220 206,029 196,583
Non-interest income:
Service charges and fees 5,267 5,672 5,745 5,157 5,248
Card income 2,138 2,033 1,972 1,796 1,509
Income from equity investments 1,440 2,517 1,460 1,519 967
Lending related income and gains (losses) on sale of loans, net 1,422 1,047 978 1,466 97
Foreign currency income 1,092 1,181 1,202 906 756
Income from bank owned life insurance 868 1,167 928 965 975
(Loss) gain on sales of investment securities, net (7,232 ) 1,436 319
Unrealized (losses) gains on assets measured at fair value, net (1,212 ) (685 ) (1,074 )
Other 635 512 432 443 585
Total non-interest income 4,418 13,444 11,643 13,688 10,456
Non-interest expenses:
Salaries and employee benefits 64,762 61,785 62,133 57,704 52,747
Legal, professional, and directors' fees 7,907 7,946 6,003 6,490 6,038
Occupancy 7,406 7,401 6,864 6,532 7,507
Data processing 5,895 5,586 5,207 5,062 4,524
Deposit costs 4,848 4,114 2,926 2,953 2,904
Insurance 3,712 3,885 3,869 3,687 3,538
Business development 1,381 1,414 1,728 1,179 1,439
Card expense 1,282 1,081 942 855 966
Loan and repossessed asset expenses 1,230 1,017 583 978 1,263
Marketing 687 1,146 596 1,176 776
Intangible amortization 398 399 398 408 489
Net (gain) loss on sales and valuations of repossessed and other assets (67 ) (179 ) (1,228 ) (34 ) 266
Other 14,400 6,953 8,128 8,408 6,839
Total non-interest expense 113,841 102,548 98,149 95,398 89,296
Income before income taxes 118,615 130,004 121,714 124,319 117,743
Income tax expense 7,492 25,325 20,814 34,973 34,899
Net income $ 111,123 $ 104,679 $ 100,900 $ 89,346 $ 82,844
Earnings per share:
Diluted shares 105,448 105,420 105,324 105,164 104,942
Diluted earnings per share $ 1.05 $ 0.99 $ 0.96 $ 0.85 $ 0.79
Western Alliance Bancorporation and Subsidiaries
Five Quarter Condensed Consolidated Balance Sheets
Unaudited
Sep 30, 2018Jun 30, 2018Mar 31, 2018Dec 31, 2017Sep 30, 2017
(in millions, except per share data)
Assets:
Cash and due from banks $ 700.5 $ 506.8 $ 439.4 $ 416.8 $ 650.4
Securities and money market investments 3,633.7 3,688.7 3,734.3 3,820.4 3,773.6
Loans held for sale 16.3
Loans held for investment:
Commercial 7,487.7 7,278.4 6,944.4 6,841.4 6,735.9
Commercial real estate - non-owner occupied 3,953.0 4,010.6 3,925.3 3,904.0 3,628.4
Commercial real estate - owner occupied 2,288.2 2,270.5 2,264.6 2,241.6 2,047.5
Construction and land development 2,107.6 1,978.3 1,957.5 1,632.2 1,666.4
Residential real estate 827.1 545.3 418.1 425.9 376.7
Consumer 69.2 55.2 50.5 48.8 50.7
Gross loans, net of deferred fees 16,732.8 16,138.3 15,560.4 15,093.9 14,505.6
Allowance for credit losses (150.0 ) (147.1 ) (144.7 ) (140.0 ) (136.4 )
Loans, net 16,582.8 15,991.2 15,415.7 14,953.9 14,369.2
Premises and equipment, net 119.2 115.4 116.7 118.7 120.1
Other assets acquired through foreclosure, net 20.0 27.5 30.2 28.5 29.0
Bank owned life insurance 169.2 168.7 168.6 167.8 166.8
Goodwill and other intangibles, net 299.5 300.0 300.4 300.7 301.2
Other assets 651.2 569.2 555.4 522.3 495.6
Total assets $ 22,176.1 $ 21,367.5 $ 20,760.7 $ 20,329.1 $ 19,922.2
Liabilities and Stockholders' Equity:
Liabilities:
Deposits
Non-interest bearing demand deposits $ 8,014.7 $ 7,947.9 $ 7,502.0 $ 7,434.0 $ 7,608.7
Interest bearing:
Demand 1,978.4 1,864.6 1,776.3 1,586.2 1,406.4
Savings and money market 7,059.1 6,468.8 6,314.9 6,330.9 6,300.2
Time certificates 1,856.4 1,806.2 1,761.3 1,621.4 1,589.5
Total deposits 18,908.6 18,087.5 17,354.5 16,972.5 16,904.8
Customer repurchase agreements 20.9 18.0 21.7 26.0 26.1
Total customer funds 18,929.5 18,105.5 17,376.2 16,998.5 16,930.9
Borrowings 75.0 300.0 390.0
Qualifying debt 359.1 361.1 363.9 376.9 372.9
Accrued interest payable and other liabilities 399.1 434.2 426.9 334.0 472.8
Total liabilities 19,687.7 18,975.8 18,467.0 18,099.4 17,776.6
Stockholders' Equity:
Common stock and additional paid-in capital 1,392.6 1,387.9 1,385.0 1,384.3 1,378.8
Retained earnings 1,166.2 1,055.1 950.4 848.5 758.6
Accumulated other comprehensive (loss) income (70.4 ) (51.3 ) (41.7 ) (3.1 ) 8.2
Total stockholders' equity 2,488.4 2,391.7 2,293.7 2,229.7 2,145.6
Total liabilities and stockholders' equity $ 22,176.1 $ 21,367.5 $ 20,760.7 $ 20,329.1 $ 19,922.2
Western Alliance Bancorporation and Subsidiaries
Changes in the Allowance For Credit Losses
Unaudited
Three Months Ended
Sept 30, 2018Jun 30, 2018Mar 31, 2018Dec 31, 2017Sept 30, 2017
(in thousands)
Balance, beginning of period $ 147,083 $ 144,659 $ 140,050 $ 136,421 $ 131,811
Provision for credit losses 6,000 5,000 6,000 5,000 5,000
Recoveries of loans previously charged-off:
Commercial and industrial 362 916 459 406 619
Commercial real estate - non-owner occupied 804 15 105 58 1,168
Commercial real estate - owner occupied 52 231 21 119 613
Construction and land development 24 8 1,388 218 226
Residential real estate 440 141 250 120 108
Consumer 11 14 10 3 33
Total recoveries 1,693 1,325 2,233 924 2,767
Loans charged-off:
Commercial and industrial 4,610 2,777 3,517 2,019 2,921
Commercial real estate - non-owner occupied 233 275 175
Commercial real estate - owner occupied
Construction and land development 1
Residential real estate 46 885 107
Consumer 109 5 1 61
Total loans charged-off 4,765 3,901 3,624 2,295 3,157
Net loan charge-offs 3,072 2,576 1,391 1,371 390
Balance, end of period $ 150,011 $ 147,083 $ 144,659 $ 140,050 $ 136,421
Net charge-offs to average loans- annualized 0.08 % 0.07 % 0.04 % 0.04 % 0.01 %
Allowance for credit losses to gross loans 0.90 % 0.91 % 0.93 % 0.93 % 0.94 %
Allowance for credit losses to gross organic loans 0.97 0.99 1.02 1.03 1.06
Allowance for credit losses to nonaccrual loans 406.89 432.38 387.86 318.84 248.07
Nonaccrual loans $ 36,868 $ 34,017 $ 37,297 $ 43,925 $ 54,994
Nonaccrual loans to gross loans 0.22 % 0.21 % 0.24 % 0.29 % 0.38 %
Repossessed assets $ 20,028 $ 27,541 $ 30,194 $ 28,540 $ 28,973
Nonaccrual loans and repossessed assets to total assets 0.26 % 0.29 % 0.33 % 0.36 % 0.42 %
Loans past due 90 days, still accruing $ $ $ 37 $ 43 $ 44
Loans past due 90 days and still accruing to gross loans % % 0.00 % 0.00 % 0.00 %
Loans past due 30 to 89 days, still accruing $ 9,360 $ 1,545 $ 6,479 $ 10,142 $ 5,179
Loans past due 30 to 89 days, still accruing to gross loans 0.06 % 0.01 % 0.04 % 0.07 % 0.04 %
Special mention loans $ 124,689 $ 150,278 $ 184,702 $ 155,032 $ 199,965
Special mention loans to gross loans 0.75 % 0.93 % 1.19 % 1.03 % 1.38 %
Classified loans on accrual $ 176,727 $ 156,659 $ 126,538 $ 127,681 $ 122,264
Classified loans on accrual to gross loans 1.06 % 0.97 % 0.81 % 0.85 % 0.84 %
Classified assets $ 252,770 $ 240,063 $ 213,482 $ 222,004 $ 221,803
Classified assets to total assets 1.14 % 1.12 % 1.03 % 1.09 % 1.11 %
Western Alliance Bancorporation and Subsidiaries
Analysis of Average Balances, Yields and Rates
Unaudited
Three Months Ended
September 30, 2018June 30, 2018
Average
Balance
InterestAverage Yield /
Cost
Average
Balance
InterestAverage Yield /
Cost
($ in millions)($ in thousands)($ in millions)($ in thousands)
Interest earning assets
Loans:
Commercial and industrial $ 7,171.1 $ 100,312 5.77 % $ 6,902.5 $ 94,243 5.64 %
CRE - non-owner occupied 4,004.0 59,383 5.95 3,964.2 59,373 6.01
CRE - owner occupied 2,259.1 30,407 5.50 2,242.6 28,698 5.23
Construction and land development 2,023.1 35,959 7.12 1,952.0 33,567 6.89
Residential real estate 656.5 7,800 4.75 433.4 5,414 5.00
Consumer 57.4 848 5.91 52.4 740 5.65
Total loans (1), (2), (3) 16,171.2 234,709 5.90 15,547.1 222,035 5.81
Securities:
Securities - taxable 2,738.6 19,277 2.82 2,802.9 19,274 2.75
Securities - tax-exempt 875.2 7,962 4.55 848.7 8,171 4.81
Total securities (1) 3,613.8 27,239 3.24 3,651.6 27,445 3.23
Cash and other 549.5 3,268 2.38 382.6 2,122 2.22
Total interest earning assets 20,334.5 265,216 5.34 19,581.3 251,602 5.26
Non-interest earning assets
Cash and due from banks 144.0 145.0
Allowance for credit losses (148.2 ) (145.6 )
Bank owned life insurance 168.8 168.3
Other assets 1,002.5 1,010.7
Total assets $ 21,501.6 $ 20,759.7
Interest-bearing liabilities
Interest-bearing deposits:
Interest-bearing transaction accounts $ 1,938.2 $ 3,256 0.67 % $ 1,824.8 $ 2,360 0.52 %
Savings and money market 6,580.3 14,891 0.91 6,126.3 12,324 0.80
Time certificates of deposit 1,863.7 7,119 1.53 1,714.8 5,165 1.20
Total interest-bearing deposits 10,382.2 25,266 0.97 9,665.9 19,849 0.82
Short-term borrowings 28.5 118 1.66 413.2 1,950 1.89
Qualifying debt 359.1 5,794 6.45 362.8 5,695 6.28
Total interest-bearing liabilities 10,769.8 31,178 1.16 10,441.9 27,494 1.05
Non-interest-bearing liabilities
Non-interest-bearing demand deposits 7,910.3 7,612.0
Other liabilities 360.8 354.0
Stockholders’ equity 2,460.7 2,351.8
Total liabilities and stockholders' equity $ 21,501.6 $ 20,759.7
Net interest income and margin (4) $ 234,038 4.72 % $ 224,108 4.70 %
(1) Yields on loans and securities have been adjusted to a tax equivalent basis. The tax equivalent adjustment was $6.0 million and $5.9 million for the three months ended September 30, 2018 and June 30, 2018, respectively.
(2) Included in the yield computation are net loan fees of $12.5 million and accretion on acquired loans of $3.3 million for the three months ended September 30, 2018, compared to $11.0 million and $5.1 million for the three months ended June 30, 2018.
(3) Includes non-accrual loans.
(4)

Net interest margin is computed by dividing net interest income by total average earning assets.

Western Alliance Bancorporation and Subsidiaries
Analysis of Average Balances, Yields and Rates
Unaudited
Three Months Ended September 30,
20182017
Average
Balance
InterestAverage Yield /
Cost
Average
Balance
InterestAverage Yield /
Cost
($ in millions)($ in thousands)($ in millions)($ in thousands)
Interest earning assets
Loans:
Commercial and industrial $ 7,171.1 $ 100,312 5.77 % $ 6,330.8 $ 80,638 5.48 %
CRE - non-owner occupied 4,004.0 59,383 5.95 3,609.5 54,442 6.06
CRE - owner occupied 2,259.1 30,407 5.50 2,032.7 25,238 5.24
Construction and land development 2,023.1 35,959 7.12 1,633.4 25,898 6.36
Residential real estate 656.5 7,800 4.75 351.5 4,151 4.72
Consumer 57.4 848 5.91 52.1 729

5.59

Total loans (1), (2), (3) 16,171.2 234,709 5.90 14,010.0 191,096 5.68
Securities:
Securities - taxable 2,738.6 19,277 2.82 2,778.4 17,399 2.50
Securities - tax-exempt 875.2 7,962 4.55 657.1 6,185 5.61
Total securities (1) 3,613.8 27,239 3.24 3,435.5 23,584 3.10
Cash and other 549.5 3,268 2.38 845.8 3,156 1.49
Total interest earning assets 20,334.5 265,216 5.34 18,291.3 217,836 5.00
Non-interest earning assets
Cash and due from banks 144.0 132.3
Allowance for credit losses (148.2 ) (133.6 )
Bank owned life insurance 168.8 166.4
Other assets 1,002.5 930.8
Total assets $ 21,501.6 $ 19,387.2
Interest-bearing liabilities
Interest-bearing deposits:
Interest-bearing transaction accounts $ 1,938.2 $ 3,256 0.67 % $ 1,476.5 $ 1,066 0.29 %
Savings and money market 6,580.3 14,891 0.91 6,282.4 7,135 0.45
Time certificates of deposit 1,863.7 7,119 1.53 1,585.7 3,248 0.82
Total interest-bearing deposits 10,382.2 25,266 0.97 9,344.6 11,449 0.49
Short-term borrowings 28.5 118 1.66 31.7 96 1.21
Qualifying debt 359.1 5,794 6.45 375.3 4,708 5.02
Total interest-bearing liabilities 10,769.8 31,178 1.16 9,751.6 16,253 0.67
Non-interest-bearing liabilities
Non-interest-bearing demand deposits 7,910.3 7,174.5
Other liabilities 360.8 336.9
Stockholders’ equity 2,460.7 2,124.2
Total liabilities and stockholders' equity $ 21,501.6 $ 19,387.2
Net interest income and margin (4) $ 234,038 4.72 % $ 201,583 4.65 %
Net interest margin, adjusted (5) 4.53 %
(1) Yields on loans and securities have been adjusted to a tax equivalent basis. The tax equivalent adjustment was $6.0 million and $10.8 million for the three months ended September 30, 2018 and 2017, respectively.
(2) Included in the yield computation are net loan fees of $12.5 million and accretion on acquired loans of $3.3 million for the three months ended September 30, 2018, compared to $9.4 million and $7.5 million for the three months ended September 30, 2017.
(3) Includes non-accrual loans.
(4) Net interest margin is computed by dividing net interest income by total average earning assets.
(5) Prior period net interest margin is adjusted to include the effects from the TCJA of the lower statutory corporate federal tax rate on the calculation of the tax equivalent adjustment in order to be comparable to the current period.
Western Alliance Bancorporation and Subsidiaries
Analysis of Average Balances, Yields and Rates
Unaudited
Nine Months Ended September 30,
20182017
Average
Balance
InterestAverage Yield /
Cost
Average
Balance
InterestAverage Yield /
Cost
($ in millions)($ in thousands)($ in millions)($ in thousands)
Interest earning assets
Loans:
Commercial and industrial $ 6,887.0 $ 280,101 5.60 % $ 6,050.4 $ 224,985 5.35 %
CRE - non-owner occupied 3,963.3 175,041 5.90 3,593.9 160,719 5.99
CRE - owner occupied 2,247.9 87,656 5.31 2,016.8 75,895 5.27
Construction and land development 1,922.3 99,146 6.89 1,583.7 72,965 6.16
Residential real estate 505.9 18,494 4.87 315.5 11,125 4.70
Consumer 52.6 2,265 5.74 45.2 1,617 4.77
Total loans (1), (2), (3) 15,579.0 662,703 5.77 13,605.5 547,306 5.58
Securities:
Securities - taxable 2,805.2 57,700 2.74 2,445.8 44,684 2.44
Securities - tax-exempt 853.7 23,605 4.61 630.0 17,643 5.55
Total securities (1) 3,658.9 81,305 3.18 3,075.8 62,327 3.07
Cash and other 453.0 7,507 2.21 745.0 7,421 1.33
Total interest earning assets 19,690.9 751,515 5.21 17,426.3 617,054 4.96
Non-interest earning assets
Cash and due from banks 143.8 138.4
Allowance for credit losses (145.0 ) (129.8 )
Bank owned life insurance 168.4 165.7
Other assets 1,001.4 917.1
Total assets $ 20,859.5 $ 18,517.7
Interest-bearing liabilities
Interest-bearing deposits:
Interest-bearing transaction accounts $ 1,806.9 $ 6,996 0.52 % $ 1,468.2 $ 2,858 0.26 %
Savings and money market 6,312.4 36,130 0.76 6,169.8 18,277 0.39
Time certificates of deposit 1,720.5 16,162 1.25 1,549.2 8,371 0.72
Total interest-bearing deposits 9,839.8 59,288 0.80 9,187.2 29,506 0.43
Short-term borrowings 263.2 3,403 1.72 58.8 374 0.85
Qualifying debt 363.6 16,458 6.04 370.8 13,539 4.87
Total interest-bearing liabilities 10,466.6 79,149 1.01 9,616.8 43,419 0.60
Non-interest-bearing liabilities
Non-interest-bearing demand deposits 7,679.1 6,548.4
Other liabilities 351.2 315.3
Stockholders’ equity 2,362.6 2,037.2
Total liabilities and stockholders' equity $ 20,859.5 $ 18,517.7
Net interest income and margin (4) $ 672,366 4.67 % $ 573,635 4.63 %
Net interest margin, adjusted (5) 4.51 %
(1) Yields on loans and securities have been adjusted to a tax equivalent basis. The tax equivalent adjustment was $17.7 million and $31.0 million for the nine months ended September 30, 2018 and 2017, respectively.
(2) Included in the yield computation are net loan fees of $33.4 million and accretion on acquired loans of $14.1 million for the nine months ended September 30, 2018, compared to $26.0 million and $21.0 million for the nine months ended September 30, 2017.
(3) Includes non-accrual loans.
(4) Net interest margin is computed by dividing net interest income by total average earning assets.
(5) Prior period net interest margin is adjusted to include the effects from the TCJA of the lower statutory corporate federal tax rate on the calculation of the tax equivalent adjustment in order to be comparable to the current period.
Western Alliance Bancorporation and Subsidiaries
Operating Segment Results
Unaudited
Balance Sheet:Regional Segments
Consolidated CompanyArizonaNevadaSouthern CaliforniaNorthern California
At September 30, 2018:(dollars in millions)
Assets:
Cash, cash equivalents, and investment securities $ 4,334.2 $ 2.0 $ 8.5 $ 2.1 $ 1.8
Loans, net of deferred loan fees and costs 16,732.8 3,593.5 1,936.7 2,116.3 1,332.3
Less: allowance for credit losses (150.0 ) (33.1 ) (18.6 ) (20.2 ) (11.3 )
Total loans 16,582.8 3,560.4 1,918.1 2,096.1 1,321.0
Other assets acquired through foreclosure, net 20.0 1.7 14.1
Goodwill and other intangible assets, net 299.5 23.2 155.8
Other assets 939.6 46.3 58.0 15.1 18.8
Total assets $ 22,176.1 $ 3,610.4 $ 2,021.9 $ 2,113.3 $ 1,497.4
Liabilities:
Deposits $ 18,908.6 $ 5,331.7 $ 3,847.3 $ 2,550.7 $ 1,951.5
Borrowings and qualifying debt 359.1
Other liabilities 420.0 13.5 16.3 1.9 12.3
Total liabilities 19,687.7 5,345.2 3,863.6 2,552.6 1,963.8
Allocated equity: 2,488.4 439.8 270.7 242.4 308.7
Total liabilities and stockholders' equity $ 22,176.1 $ 5,785.0 $ 4,134.3 $ 2,795.0 $ 2,272.5
Excess funds provided (used) 2,174.6 2,112.4 681.7 775.1
No. of offices 47 10 16 9 3
No. of full-time equivalent employees 1,795 120 94 118 122
Income Statement:
Three Months Ended September 30, 2018:(in thousands)
Net interest income $ 234,038 $ 56,701 $ 37,933 $ 29,572 $ 23,825
Provision for (recovery of) credit losses 6,000 (297 ) (38 ) 1,467 482
Net interest income after provision for credit losses 228,038 56,998 37,971 28,105 23,343
Non-interest income 4,418 2,230 2,573 931 2,312
Non-interest expense (113,841 ) (23,231 ) (16,471 ) (14,332 ) (13,207 )
Income (loss) before income taxes 118,615 35,997 24,073 14,704 12,448
Income tax expense (benefit) 7,492 8,999 5,055 4,117 3,486
Net income $ 111,123 $ 26,998 $ 19,018 $ 10,587 $ 8,962
Nine Months Ended September 30, 2018:(in thousands)
Net interest income $ 672,366 $ 169,233 $ 109,898 $ 85,038 $ 69,081
Provision for (recovery of) credit losses 17,000 1,655 (2,005 ) 1,921 2,043
Net interest income after provision for credit losses 655,366 167,578 111,903 83,117 67,038
Non-interest income 29,505 5,902 8,585 2,898 7,281
Non-interest expense (314,538 ) (67,154 ) (46,486 ) (42,470 ) (39,139 )
Income (loss) before income taxes 370,333 106,326 74,002 43,545 35,180
Income tax expense (benefit) 53,631 26,644 15,634 12,288 9,938
Net income $ 316,702 $ 79,682 $ 58,368 $ 31,257 $ 25,242
Western Alliance Bancorporation and Subsidiaries
Operating Segment Results
Unaudited
Balance Sheet:National Business Lines

HOA
Services

Public &
Nonprofit
Finance

Technology &
Innovation

Hotel
Franchise
Finance

Other NBLs

Corporate &
Other

At September 30, 2018:(dollars in millions)
Assets:
Cash, cash equivalents, and investment securities $ $ $ $ $ $ 4,319.8
Loans, net of deferred loan fees and costs 202.1 1,520.2 1,106.5 1,435.4 3,483.2 6.6
Less: allowance for credit losses (1.9 ) (14.4 ) (9.9 ) (7.3 ) (33.2 ) (0.1 )
Total loans 200.2 1,505.8 1,096.6 1,428.1 3,450.0 6.5
Other assets acquired through foreclosure, net 4.2
Goodwill and other intangible assets, net 120.4 0.1
Other assets 1.0 19.2 5.4 6.8 23.8 745.2
Total assets $ 201.2 $ 1,525.0 $ 1,222.4 $ 1,435.0 $ 3,473.8 $ 5,075.7
Liabilities:
Deposits $ 2,523.9 $ $ 2,319.5 $ $ $ 384.0
Borrowings and qualifying debt 359.1
Other liabilities 1.7 10.1 0.1 (0.1 ) 85.4 278.8
Total liabilities 2,525.6 10.1 2,319.6 (0.1 ) 85.4 1,021.9
Allocated equity: 68.5 121.4 256.5 119.1 286.0 375.3
Total liabilities and stockholders' equity $ 2,594.1 $ 131.5 $ 2,576.1 $ 119.0 $ 371.4 $ 1,397.2
Excess funds provided (used) 2,392.9 (1,393.5 ) 1,353.7 (1,316.0 ) (3,102.4 ) (3,678.5 )
No. of offices 1 1 9 1 4 (7 )
No. of full-time equivalent employees 69 11 62 16 52 1,131
Income Statement:
Three Months Ended September 30, 2018:(in thousands)
Net interest income $ 17,930 $ 3,683 $ 27,233 $ 13,557 $ 20,329 $ 3,275
Provision for (recovery of) credit losses 103 (553 ) 1,448 223 3,214 (49 )
Net interest income after provision for credit losses 17,827 4,236 25,785 13,334 17,115 3,324
Non-interest income 215 159 2,836 549 (7,387 )
Non-interest expense (8,254 ) (2,134 ) (9,933 ) (3,014 ) (7,280 ) (15,985 )
Income (loss) before income taxes 9,788 2,261 18,688 10,320 10,384 (20,048 )
Income tax expense (benefit) 2,251 521 4,298 2,374 2,388 (25,997 )
Net income $ 7,537 $ 1,740 $ 14,390 $ 7,946 $ 7,996 $ 5,949
Nine Months Ended September 30, 2018:(in thousands)
Net interest income $ 49,335 $ 11,224 $ 74,615 $ 41,617 $ 58,813 $ 3,512
Provision for (recovery of) credit losses 285 (786 ) 5,355 2,006 6,573 (47 )
Net interest income after provision for credit losses 49,050 12,010 69,260 39,611 52,240 3,559
Non-interest income 543 158 9,518 13 1,182 (6,575 )
Non-interest expense (24,090 ) (6,386 ) (29,666 ) (7,419 ) (19,193 ) (32,535 )
Income (loss) before income taxes 25,503 5,782 49,112 32,205 34,229 (35,551 )
Income tax expense (benefit) 5,866 1,329 11,296 7,407 7,873 (44,644 )
Net income $ 19,637 $ 4,453 $ 37,816 $ 24,798 $ 26,356 $ 9,093
Western Alliance Bancorporation and Subsidiaries
Operating Segment Results
Unaudited
Balance Sheet:Regional Segments

Consolidated
Company

ArizonaNevada

Southern
California

Northern
California

At December 31, 2017:(dollars in millions)
Assets:
Cash, cash equivalents, and investment securities $ 4,237.1 $ 2.1 $ 8.2 $ 2.1 $ 1.7
Loans, net of deferred loan fees and costs 15,093.9 3,323.7 1,844.8 1,934.7 1,275.5
Less: allowance for credit losses (140.0 ) (31.5 ) (18.1 ) (19.5 ) (13.2 )
Total loans 14,953.9 3,292.2 1,826.7 1,915.2 1,262.3
Other assets acquired through foreclosure, net 28.5 2.3 13.3 0.2
Goodwill and other intangible assets, net 300.7 23.2 156.5
Other assets 808.9 46.3 58.8 14.4 15.1
Total assets $ 20,329.1 $ 3,342.9 $ 1,930.2 $ 1,931.7 $ 1,435.8
Liabilities:
Deposits $ 16,972.5 $ 4,841.3 $ 3,951.4 $ 2,461.1 $ 1,681.7
Borrowings and qualifying debt 766.9
Other liabilities 360.0 11.6 20.9 3.2 11.9
Total liabilities 18,099.4 4,852.9 3,972.3 2,464.3 1,693.6
Allocated equity: 2,229.7 396.5 263.7 221.8 303.1
Total liabilities and stockholders' equity $ 20,329.1 $ 5,249.4 $ 4,236.0 $ 2,686.1 $ 1,996.7
Excess funds provided (used) 1,906.5 2,305.8 754.4 560.9
No. of offices 47 10 16 9 3
No. of full-time equivalent employees 1,725 110 91 111 123
Income Statements:
Three Months Ended September 30, 2017:(in thousands)
Net interest income (expense) $ 201,583 $ 52,637 $ 36,310 $ 26,811 $ 21,932
Provision for (recovery of) credit losses 5,000 (289 ) (2,044 ) (58 ) 3,144
Net interest income (expense) after provision for credit losses 196,583 52,926 38,354 26,869 18,788
Non-interest income 10,456 1,265 2,354 971 1,796
Non-interest expense (89,296 ) (18,844 ) (14,748 ) (12,340 ) (11,317 )
Income (loss) before income taxes 117,743 35,347 25,960 15,500 9,267
Income tax expense (benefit) 34,899 13,857 9,086 6,517 3,897
Net income $ 82,844 $ 21,490 $ 16,874 $ 8,983 $ 5,370
Nine Months Ended September 30, 2017:(in thousands)
Net interest income (expense) $ 573,635 $ 145,839 $ 108,028 $ 81,087 $ 63,686
Provision for (recovery of) credit losses 12,250 109 (5,378 ) (20 ) 4,238
Net interest income (expense) after provision for credit losses 561,385 145,730 113,406 81,107 59,448
Non-interest income 31,656 3,567 6,800 2,602 5,839
Non-interest expense (265,543 ) (55,388 ) (45,733 ) (38,063 ) (36,188 )
Income (loss) before income taxes 327,498 93,909 74,473 45,646 29,099
Income tax expense (benefit) 91,352 36,831 26,066 19,194 12,236
Net income $ 236,146 $ 57,078 $ 48,407 $ 26,452 $ 16,863
Western Alliance Bancorporation and Subsidiaries
Operating Segment Results
Unaudited
Balance Sheet:National Business Lines
HOA
Services

Public
& Nonprofit
Finance

Technology &
Innovation

Hotel
Franchise
Finance

Other NBLs

Corporate &
Other

At December 31, 2017:(dollars in millions)
Assets:
Cash, cash equivalents, and investment securities $ $ $ $ $ $ 4,223.0
Loans, net of deferred loan fees and costs 162.1 1,580.4 1,097.9 1,327.7 2,543.0 4.1
Less: allowance for credit losses (1.6 ) (15.6 ) (11.4 ) (4.0 ) (25.0 ) (0.1 )
Total loans 160.5 1,564.8 1,086.5 1,323.7 2,518.0 4.0
Other assets acquired through foreclosure, net 12.7
Goodwill and other intangible assets, net 120.9 0.1
Other assets 0.9 17.9 6.0 5.9 15.5 628.1
Total assets $ 161.4 $ 1,582.7 $ 1,213.4 $ 1,329.7 $ 2,533.5 $ 4,867.8
Liabilities:
Deposits $ 2,230.4 $ $ 1,737.6 $ $ $ 69.0
Borrowings and qualifying debt 766.9
Other liabilities 1.2 42.4 0.8 0.4 5.5 262.1
Total liabilities 2,231.6 42.4 1,738.4 0.4 5.5 1,098.0
Allocated equity: 59.4 126.5 244.1 108.3 206.0 300.3
Total liabilities and stockholders' equity $ 2,291.0 $ 168.9 $ 1,982.5 $ 108.7 $ 211.5 $ 1,398.3
Excess funds provided (used) 2,129.6 (1,413.8 ) 769.1 (1,221.0 ) (2,322.0 ) (3,469.5 )
No. of offices 1 1 9 1 4 (7 )
No. of full-time equivalent employees 65 10 62 12 38 1,103
Income Statement:
Three Months Ended September 30, 2017:(in thousands)
Net interest income (expense) $ 13,746 $ 7,269 $ 20,415 $ 15,346 $ 16,933 $ (9,816 )
Provision for (recovery of) credit losses 40 91 (83 ) 1,116 4,416 (1,333 )
Net interest income (expense) after provision for credit losses 13,706 7,178 20,498 14,230 12,517 (8,483 )
Non-interest income 136 183 1,855 379 1,517
Non-interest expense (7,011 ) (2,053 ) (8,824 ) (1,905 ) (5,286 ) (6,968 )
Income (loss) before income taxes 6,831 5,308 13,529 12,325 7,610 (13,934 )
Income tax expense (benefit) 2,562 1,028 5,075 4,622 2,853 (14,598 )
Net income $ 4,269 $ 4,280 $ 8,454 $ 7,703 $ 4,757 $ 664
Nine Months Ended September 30, 2017:(in thousands)
Net interest income (expense) $ 40,275 $ 21,242 $ 59,610 $ 42,337 $ 46,380 $ (34,849 )
Provision for (recovery of) credit losses 332 796 816 2,924 10,265 (1,832 )
Net interest income (expense) after provision for credit losses 39,943 20,446 58,794 39,413 36,115 (33,017 )
Non-interest income 417 415 5,689 1,632 4,695
Non-interest expense (21,416 ) (6,522 ) (26,685 ) (7,949 ) (14,573 ) (13,026 )
Income (loss) before income taxes 18,944 14,339 37,798 31,464 23,174 (41,348 )
Income tax expense (benefit) 7,104 4,424 14,175 11,799 8,690 (49,167 )
Net income $ 11,840 $ 9,915 $ 23,623 $ 19,665 $ 14,484 $ 7,819
Western Alliance Bancorporation and Subsidiaries
Reconciliation of Non-GAAP Financial Measures
Unaudited
Operating Pre-Provision Net Revenue by Quarter:
Three Months Ended
Sept 30, 2018Jun 30, 2018Mar 31, 2018Dec 31, 2017Sep 30, 2017
(in thousands)
Total non-interest income $ 4,418 $ 13,444 $ 11,643 $ 13,688 $ 10,456
Less:
(Losses) gains on sales of investment securities, net (7,232 ) 1,436 319
Unrealized (losses) gains on assets measured at fair value, net (1,212 ) (685 ) (1,074 )
Total operating non-interest income 12,862 14,129 12,717 12,252 10,137
Plus: net interest income 234,038 224,108 214,220 211,029 201,583
Net operating revenue (1) $ 246,900 $ 238,237 $ 226,937 $ 223,281 $ 211,720
Total non-interest expense $ 113,841 $ 102,548 $ 98,149 $ 95,398 $ 89,296
Less:
Advance funding to charitable foundation 7,645

401(k) plan change and other miscellaneous items

1,218
Net (gain) loss on sales and valuations of repossessed and other assets (67 ) (179 ) (1,228 ) (34 ) 266
Total operating non-interest expense (1) $ 105,045 $ 102,727 $ 99,377 $ 95,432 $ 89,030
Operating pre-provision net revenue (2) $ 141,855 $ 135,510 $ 127,560 $ 127,849 $ 122,690
Plus:
Non-operating revenue adjustments (8,444 ) (685 ) (1,074 ) 1,436 319
Less:
Provision for credit losses 6,000 5,000 6,000 5,000 5,000
Non-operating expense adjustments 8,796 (179 ) (1,228 ) (34 ) 266
Income tax expense 7,492 25,325 20,814 34,973 34,899
Net income $ 111,123 $ 104,679 $ 100,900 $ 89,346 $ 82,844
Operating Efficiency Ratio by Quarter:
Three Months Ended
Sep 30, 2018Jun 30, 2018Mar 31, 2018Dec 31, 2017Sep 30, 2017
(in thousands)
Total operating non-interest expense $ 105,045 $ 102,727 $ 99,377 $ 95,432 $ 89,030
Divided by:
Total net interest income 234,038 224,108 214,220 211,029 201,583
Plus:
Tax equivalent interest adjustment 6,003 5,939 5,727 11,023 10,837
Operating non-interest income 12,862 14,129 12,717 12,252 10,137
$ 252,903 $ 244,176 $ 232,664 $ 234,304 $ 222,557
Operating efficiency ratio - tax equivalent basis (3) 41.5 % 42.1 % 42.7 % 40.7 % 40.0 %
Operating efficiency ratio - adjusted * 41.7 % 41.0 %
(1), (2), (3) See Non-GAAP Financial Measures footnotes.
* The prior period 2017 operating efficiency ratios are adjusted to include the effects from the TCJA of the lower statutory corporate federal tax rate on the calculation of the tax equivalent adjustment in order to be comparable to the current reporting periods.

Western Alliance Bancorporation and Subsidiaries

Reconciliation of Non-GAAP Financial Measures

Unaudited

Tangible Common Equity:
Sep 30, 2018Jun 30, 2018Mar 31, 2018Dec 31, 2017Sep 30, 2017
(dollars and shares in thousands)
Total stockholders' equity $ 2,488,393 $ 2,391,684 $ 2,293,763 $ 2,229,698 $ 2,145,627
Less: goodwill and intangible assets 299,553 299,951 300,350 300,748 301,157
Total tangible common equity 2,188,840 2,091,733 1,993,413 1,928,950 1,844,470
Plus: deferred tax - attributed to intangible assets 2,462 2,555 2,773 2,698 4,341
Total tangible common equity, net of tax $ 2,191,302 $ 2,094,288 $ 1,996,186 $ 1,931,648 $ 1,848,811
Total assets $ 22,176,147 $ 21,367,452 $ 20,760,731 $ 20,329,085 $ 19,922,221
Less: goodwill and intangible assets, net 299,553 299,951 300,350 300,748 301,157
Tangible assets 21,876,594 21,067,501 20,460,381 20,028,337 19,621,064
Plus: deferred tax - attributed to intangible assets 2,462 2,555 2,773 2,698 4,341
Total tangible assets, net of tax $ 21,879,056 $ 21,070,056 $ 20,463,154 $ 20,031,035 $ 19,625,405
Tangible common equity ratio (4) 10.0 % 9.9 % 9.8 % 9.6 % 9.4 %
Common shares outstanding 105,865 105,876 105,861 105,487 105,493
Tangible book value per share, net of tax (5) $ 20.70 $ 19.78 $ 18.86 $ 18.31 $ 17.53

(4), (5) See Non-GAAP Financial Measures footnotes.

Western Alliance Bancorporation and Subsidiaries

Reconciliation of Non-GAAP Financial Measures

Unaudited

Regulatory Capital:

Sept 30, 2018Dec 31, 2017
(in thousands)
Common Equity Tier 1:
Common equity $ 2,488,393 $ 2,229,698
Less:
Non-qualifying goodwill and intangibles 296,980 296,421
Disallowed deferred tax asset 984 638
AOCI related adjustments (78,289 ) (9,496 )
Unrealized gain on changes in fair value liabilities 11,872 7,785
Common equity Tier 1 (6) (9) $ 2,256,846 $ 1,934,350
Divided by: estimated risk-weighted assets (7) (9) $ 20,690,767 $ 18,569,608
Common equity Tier 1 ratio (7) (9) 10.9 % 10.4 %
Common equity Tier 1 (6)(9) 2,256,846 1,934,350
Plus:
Trust preferred securities 81,500 81,500
Less:
Disallowed deferred tax asset 159
Unrealized gain on changes in fair value of liabilities 1,947
Tier 1 capital (7) (9) $ 2,338,346 $ 2,013,744
Divided by: Tangible average assets $ 21,286,259 $ 19,624,517
Tier 1 leverage ratio 11.0 % 10.3 %
Total Capital:
Tier 1 capital (6) (9) $ 2,338,346 $ 2,013,744

Plus:

Subordinated debt 299,151 301,020
Qualifying allowance for credit losses 150,011 140,050
Other 7,617 6,174
Less: Tier 2 qualifying capital deductions
Tier 2 capital $ 456,779 $ 447,244
Total capital $ 2,795,125 $ 2,460,988
Total capital ratio 13.5 % 13.3 %
Classified assets to Tier 1 capital plus allowance for credit losses:
Classified assets $ 252,770 $ 222,004
Divided by:
Tier 1 capital (7) (9) 2,338,346 2,013,744
Plus: Allowance for credit losses 150,011 140,050
Total Tier 1 capital plus allowance for credit losses $ 2,488,357 $ 2,153,794
Classified assets to Tier 1 capital plus allowance (8) (9) 10.2 % 10.3 %

(6), (7), (8), (9) See Non-GAAP Financial Measures footnotes.

Non-GAAP Financial Measures Footnotes
(1) We believe these non-GAAP measurements provide a useful indication of the cash generating capacity of the Company.
(2) We believe this non-GAAP measurement is a key indicator of the earnings power of the Company.
(3) We believe this non-GAAP ratio provides a useful metric to measure the operating efficiency of the Company.
(4) We believe this non-GAAP ratio provides an important metric with which to analyze and evaluate financial condition and capital strength.
(5) We believe this non-GAAP measurement improves the comparability to other institutions that have not engaged in acquisitions that resulted in recorded goodwill and other intangibles.
(6) Under the current guidelines of the Federal Reserve and the Federal Deposit Insurance Corporation, common equity Tier 1 capital consists of common stock, retained earnings, and minority interests in certain subsidiaries, less most other intangible assets.
(7) Common equity Tier 1 is often expressed as a percentage of risk-weighted assets. Under the risk-based capital framework, a bank's balance sheet assets and credit equivalent amounts of off-balance sheet items are assigned to one of the risk categories defined under new capital guidelines. The aggregated dollar amount in each category is then multiplied by the risk weighting assigned to that category. The resulting weighted values from each category are added together and this sum is the risk-weighted assets total that, as adjusted, comprises the denominator (risk-weighted assets) of the common equity Tier 1 ratio. Common equity Tier 1 is divided by the risk-weighted assets to determine the common equity Tier 1 ratio. We believe this non-GAAP ratio provides an important metric with which to analyze and evaluate financial condition and capital strength.
(8) We believe this non-GAAP ratio provides an important regulatory metric to analyze asset quality.
(9) Current quarter is preliminary until Call Report is filed.

Contacts:

Western Alliance Bancorporation
Dale Gibbons, 602-952-5476

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