Western Alliance Sees Huge Deposit Growth

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Financial institutions have had to deal with a lot of turbulence recently. After having enjoyed consistent Federal Reserve interest rate hikes throughout 2018, the sudden fear of recession that hit toward the end of last year put an end to the favorable conditions that regional bank Western Alliance Bancorporation (NYSE: WAL) and its peers had enjoyed throughout much of the previous year. Even as the rest of the stock market has recovered sharply, Western Alliance continued to see volatility throughout the first quarter.

Coming into Monday's first-quarter financial report, Western Alliance shareholders wanted to see signs that the bank could overcome headwinds and produce encouraging levels of growth. Western Alliance's numbers were solid, and that was enough to inspire a modest level of enthusiasm from investors.

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How Western Alliance started 2019

Western Alliance's first-quarter results were consistent with the fundamentally strong performance we've seen from the bank recently. Net operating revenue of $259.9 million was up nearly 15% from year-earlier levels, although that was slightly slower than the 17% growth rate that those following the stock had hoped to see. Net income of $120.8 million was 20% higher than it was a year ago, and earnings of $1.16 per share topped the consensus forecast among investors by $0.07 per share.

The most noteworthy element of Western Alliance's success was its $1 billion increase in total deposits over the past three months, bringing its total to $20.21 billion. That matched up to more modest loan growth of about $400 million to $18.12 billion, but when you look back at the past year, Western Alliance did a good job of matching up loan and deposit growth. Tangible book value came in at $23.20 per share, up about 5% from where it was three months ago. Net interest margin widened slightly to 4.71%, and tangible common equity ratios rose to 10.3%.

Credit quality also remained favorable for Western Alliance. Nonperforming assets fell to 0.26% of total assets, down from 0.33% a year ago, and loan charge-offs remained low at 0.03% on an annualized basis.

What's ahead for Western Alliance?

CEO Ken Vecchione was pleased with the results. "Western Alliance is off to a solid start to the year, continuing its momentum from 2018," the CEO said, "and with this quarter's strong balance sheet growth, Western Alliance is well-positioned for another great year."

From a regional standpoint, Western Alliance got consistently solid performance across its geographical reach. In the broadest possible terms, the Southern California market consistently showed up at the top of most categories, including loan and deposit growth for the quarter. However, Arizona and Nevada were also healthy, and even though Northern California saw decreases in outstanding loans during the period, it did manage to see some modest deposit gains.

Meanwhile, Western Alliance's business lines saw disparate results. The hotel franchise finance arena remained fertile ground for the regional bank, enjoying gains in loan growth. However, technology and innovation suffered decreases in both loans and deposits during the three-month period, seemingly reflecting a pause in the rapid growth that the tech sector has enjoyed throughout the past several years. Yet the homeowners association segment also performed well for Western Alliance.

Western Alliance shareholders looked happy about how the bank did, and the stock climbed between 1% and 2% in after-hours trading following the announcement. If the recovery throughout much of the stock market correctly reflects expectations that the U.S. economy will avoid a full-blown recession, then it could well be that Western Alliance will be able to overcome some of the headwinds it's had to deal with recently and start building up stronger momentum for the remainder of the year and beyond.

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