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Western Alliance Reports Second Quarter 2018 Financial Performance

Western Alliance Bancorporation (NYSE:WAL):

SECOND QUARTER 2018 FINANCIAL RESULTS

Net incomeEarnings per shareNet interest marginEfficiency ratioBook value per
common share
$104.7 million$0.994.70%42.1%$22.59

CEO COMMENTARY:

“The success of our constructive partnership with customers – helping them succeed helps us succeed – led Western Alliance to another solid quarter of performance,” said Chief Executive Officer, Kenneth Vecchione.

“Deposit growth of $733 million paired with loan growth of $578 million, together drove net interest income to a new high and boosted the interest margin 10 basis points to 4.70 percent. Operating leverage improved as the $11.3 million increase in net operating revenue1 from the first quarter was more than triple the $3.3 million increase in operating expense1. Asset quality remained strong with net loan losses of only 0.07 percent of total loans during the quarter and non-performing assets of 0.29 percent of total assets. Net income of $104.7 million and earnings per share of $0.99 were each 30 percent higher than the year ago period. Return on assets exceeded 2 percent for the first time in company history and return on tangible equity1 was again above 20 percent. Tangible book value per share1 now stands at $19.78.”

LINKED-QUARTER BASIS YEAR-OVER-YEAR
FINANCIAL HIGHLIGHTS:
  • Net income and earnings per share of $104.7 million and $0.99 compared to $100.9 million and $0.96, respectively
  • Net income of $104.7 million and earnings per share of $0.99, compared to $80.0 million and $0.76, respectively

  • Net operating revenue of $238.2 million constituting growth of 5.0%, or $11.3 million, compared to an increase in operating non-interest expenses of 3.4%, or $3.4 million1

  • Net operating revenue of $238.2 million constituting year-over-year growth of 17.1%, or $34.8 million, compared to an increase in operating non-interest expenses of 16.5%, or $14.5 million1
  • Operating pre-provision net revenue of $135.5 million, up $7.9 million from $127.6 million1
  • Operating pre-provision net revenue of $135.5 million, up $20.3 million from $115.2 million 1

  • Effective tax rate of 19.48%, compared to 17.10%, due the cyclical excess tax benefits on share-based payment awards in Q1
  • Effective tax rate of 19.48%, compared to 28.56%, due to the effect of the Tax Cuts and Jobs Act.

FINANCIAL POSITION RESULTS:

  • Total loans of $16.14 billion, up $578 million, or 14.3% annualized
  • Increase in total loans of $2.15 billion, or 15.4%
  • Total deposits of $18.09 billion, up $733 million, or 16.9% annualized

  • Increase in total deposits of $2.06 billion, or 12.8%

  • Stockholders' equity of $2.39 billion, up $98 million
  • Increase in stockholders' equity of $333 million

LOANS AND ASSET QUALITY:

  • Nonperforming assets (nonaccrual loans and repossessed assets) to total assets of 0.29%, compared to 0.33%
  • Nonperforming assets to total assets of 0.29%, compared to 0.32%
  • Annualized net loan charge-offs to average loans outstanding of 0.07%, compared to 0.04%

  • Annualized net loan charge-offs (recoveries) to average loans outstanding of 0.07%, compared to (0.03)%

KEY PERFORMANCE METRICS:

  • Net interest margin of 4.70%, compared to 4.60%
  • Return on average assets and return on tangible common equity1 of 2.02% and 20.41%, compared to 1.99% and 20.46%, respectively

  • Tangible common equity ratio of 9.9%, compared to 9.8% 1
  • Net interest margin of 4.70%, compared to 4.61%

  • Tangible book value per share, net of tax, of $19.78, an increase from $18.86 1

  • Return on average assets and return on tangible common equity1 of 2.02% and 20.41%, compared to 1.71% and 18.42%, respectively
  • Operating efficiency ratio of 42.1%, compared to 42.7% 1
  • Tangible common equity ratio of 9.9%, compared to 9.5% 1

  • Tangible book value per share, net of tax, of $19.78, an increase of 18.4% from $16.71 1
  • Operating efficiency ratio of 42.1%, compared to 41.2% 1

1 See reconciliation of Non-GAAP Financial Measures.

Income Statement

Net interest income was $224.1 million in the second quarter 2018, an increase of $9.9 million from $214.2 million in the first quarter 2018, and an increase of $31.4 million, or 16.3%, compared to the second 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 or over the life of the loans and may be accelerated upon prepayment of acquired loans. Net interest income in the second quarter 2018 includes $5.1 million of total accretion income from acquired loans, compared to $5.7 million in the first quarter 2018, and $7.1 million in the second quarter 2017.

The Company’s net interest margin in the second quarter 2018 was 4.70%, an increase from 4.60% in the first quarter 2018, and from 4.61% in the second 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 4.49% for the second quarter 2017.

Operating non-interest income was $14.1 million for the second quarter 2018, compared to $12.7 million for the first quarter 2018, and $10.6 million for the second quarter 2017.1 The increase in operating non-interest income for the second quarter 2018 compared to the same quarter in the prior year is due primarily to increases in income from equity securities of $1.2 million, lending related income of $0.8 million, and card income of $0.5 million.

Net operating revenue was $238.2 million for the second quarter 2018, an increase of $11.3 million, compared to $226.9 million for the first quarter 2018, and an increase of $34.8 million, or 17.1%, compared to $203.4 million for the second quarter 2017.1

Operating non-interest expense was $102.7 million for the second quarter 2018, compared to $99.4 million for the first quarter 2018, and $88.2 million for the second quarter 2017.1 The Company’s operating efficiency ratio1 on a tax equivalent basis was 42.1% for the second quarter 2018, compared to 42.7% for the first quarter 2018, and 41.2% for the second 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 42.3% for the second quarter 2017.

Income tax expense was $25.3 million for the second quarter 2018, compared to $20.8 million for the first quarter 2018, and $32.0 million for the second quarter 2017. Income tax expense for the first and second quarters of 2018 includes the effect of the TCJA, which lowered the statutory corporate tax rate from 35% to 21%.

Net income was $104.7 million for the second quarter 2018, an increase of $3.8 million from $100.9 million for the first quarter 2018, and an increase of $24.7 million, or 30.9%, from $80.0 million for the second quarter 2017. Earnings per share was $0.99 for the second quarter 2018, compared to $0.96 for the first quarter 2018, and $0.76 for the second 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 second quarter 2018, the Company’s operating PPNR was $135.5 million, up from $127.6 million in the first quarter 2018, and up 17.6% from $115.2 million in the second quarter 2017.1 The non-operating items1 for the second quarter 2018 consisted of a net gain on sales and valuations of repossessed and other assets of $0.2 million, offset by net unrealized losses on assets measured at fair value of $0.7 million.

The Company had 1,773 full-time equivalent employees and 47 offices at June 30, 2018, compared to 1,713 employees and 47 offices at March 31, 2018, and 1,628 employees and 46 offices at June 30, 2017.

1 See reconciliation of Non-GAAP Financial Measures.

Balance Sheet

Gross loans totaled $16.14 billion at June 30, 2018, an increase of $578 million from $15.56 billion at March 31, 2018, and an increase of $2.15 billion from $13.99 billion at June 30, 2017. The increase from the prior quarter was driven by an increase of $334 million in commercial and industrial loans and $127 million in residential real estate loans. From June 30, 2017, loans increased across all loan types, with the largest increase in commercial and industrial loans of $957 million. At June 30, 2018, the allowance for credit losses to gross loans held for investment was 0.91%, compared to 0.93% at March 31, 2018, and 0.94% at June 30, 2017. At June 30, 2018, the allowance for credit losses to total organic loans was 0.99%, compared to 1.02% at March 31, 2018, and 1.08% at June 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 $19.7 million at June 30, 2018, compared to $23.1 million at March 31, 2018, and $37.8 million at June 30, 2017.

Deposits totaled $18.09 billion at June 30, 2018, an increase of $733 million from $17.35 billion at March 31, 2018, and an increase of $2.06 billion from $16.03 billion at June 30, 2017. The increase from the prior quarter was driven by an increase of $446 million in non-interest bearing demand deposits and $154 million from savings and money market accounts. From June 30, 2017, deposits increased across all deposit types, with the largest increase in non-interest bearing demand deposits of $1.09 billion. Non-interest bearing deposits were $7.95 billion at June 30, 2018, compared to $7.50 billion at March 31, 2018, and $6.86 billion at June 30, 2017. Non-interest bearing deposits comprised 43.9% of total deposits at June 30, 2018, compared to 43.2% at March 31, 2018, and 42.8% at June 30, 2017. The proportion of savings and money market balances to total deposits was 35.8%, compared to 36.4% at March 31, 2018, and 38.1% at June 30, 2017. Certificates of deposit as a percentage of total deposits were 10.0% at June 30, 2018, compared to 10.1% at March 31, 2018, and 9.9% at June 30, 2017. The Company’s ratio of loans to deposits was 89.2% at June 30, 2018, compared to 89.7% at March 31, 2018, and 87.3% at June 30, 2017.

Borrowings totaled $75 million at June 30, 2018, a decrease of $225 million from $300 million at March 31, 2018, and an increase of $75 million from zero at June 30, 2017. The change in borrowings from both the prior quarter and the prior year is due to fluctuations in FHLB overnight advances.

Qualifying debt totaled $361 million at June 30, 2018, compared to $364 million at March 31, 2018, and $375 million at June 30, 2017.

Stockholders’ equity at June 30, 2018 was $2.39 billion, compared to $2.29 billion at March 31, 2018, and $2.06 billion at June 30, 2017.

At June 30, 2018, tangible common equity, net of tax, was 9.9% of tangible assets1 and total capital was 13.4% of risk-weighted assets. The Company’s tangible book value per share1 was $19.78 at June 30, 2018, up 18.4% from June 30, 2017.

Total assets increased 2.9% to $21.37 billion at June 30, 2018, from $20.76 billion at March 31, 2018, and increased 13.4% from $18.84 billion at June 30, 2017. The increase in total assets from the prior year relates primarily to organic loan growth and an increase in investment securities resulting from utilized cash from increased deposits.

Asset Quality

The provision for credit losses was $5.0 million for the second quarter 2018, compared to $6.0 million for the first quarter 2018, and compared to $3.0 million for the second quarter 2017. Net loan charge-offs (recoveries) in the second quarter 2018 were $2.6 million, or 0.07% of average loans (annualized), compared to $1.4 million, or 0.04%, in the first quarter 2018, and $(1.2) million, or (0.03)%, in the second quarter 2017.

Nonaccrual loans decreased $3.3 million to $34.0 million during the quarter and increased $3.9 million during past twelve months. Loans past due 90 days and still accruing interest totaled zero at June 30, 2018, compared to $37 thousand at March 31, 2018, and $4.0 million at June 30, 2017. Loans past due 30-89 days and still accruing interest totaled $1.5 million at quarter end, a decrease from $6.5 million at March 31, 2018, and a decrease from $4.1 million at June 30, 2017.

Repossessed assets totaled $27.5 million at June 30, 2018, a decrease of $2.7 million from $30.2 million at March 31, 2018, and a decrease of $3.5 million from $31.0 million at June 30, 2017. Adversely graded loans and non-performing assets totaled $368.5 million at June 30, 2018, a decrease of $10.2 million from $378.7 million at March 31, 2018, and an increase of $0.7 million from $367.8 million at June 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 10.1% at June 30, 2018, compared to 9.4% at March 31, 2018, and 12.7% at June 30, 2017.1

1 See reconciliation of Non-GAAP Financial Measures beginning on page 20.

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 $8.72 billion at June 30, 2018, an increase of $144 million during the quarter, and an increase of $891 million during the last twelve months. The growth in loans during the quarter was driven primarily by increases of $85 million in Arizona and $31 million in Nevada. The growth in loans during the last twelve months was driven by increases in all regional segments. The largest increases were $468 million in Arizona and $189 million in Southern California, followed by Nevada and Northern California with increases of $121 million and $113 million, respectively. Total deposits for the regional segments were $13.12 billion, an increase of $212 million during the quarter, and an increase of $616 million during the last twelve months. During the quarter, Arizona and Nevada had increases in deposits of $249 million and $114 million, respectively. These increases were partially offset by decreases of $121 million and $30 million in Southern California and Northern California, respectively. During the last twelve months, Arizona, Northern California, and Southern California had increased deposits of $491 million, $237 million, and $52 million, respectively. These increases were partially offset by a decrease in deposits of $163 million in Nevada.

Pre-tax income for the regional segments was $86.0 million for the three months ended June 30, 2018, an increase of $0.1 million from the three months ended March 31, 2018, and an increase of $1.3 million from the three months ended June 30, 2017. Arizona and Northern California had increases in pre-tax income of $4.3 million and $1.2 million, respectively, compared to the three months ended March 31, 2018. These increases were partially offset by a decrease of $5.4 million in Nevada. Arizona and Northern California had increases in pre-tax income from the three months ended June 30, 2017 of $5.1 million and $3.2 million, respectively. These increases were partially offset by decreases of $4.5 million and $2.6 million in Nevada and Southern California, respectively. For the six months ended June 30, 2018, the regional segments reported total pre-tax income of $171.8 million, an increase of $14.8 million compared to the six months ended June 30, 2017. Arizona, Northern California, and Nevada each had increases of $11.8 million, $2.9 million, and $1.4 million, respectively. These increases were partially offset by a decrease of $1.3 million in Southern California.

The NBL segments reported gross loan balances of $7.41 billion at June 30, 2018, an increase of $432 million during the quarter, and an increase of $1.26 billion during the last twelve months. There were increases in loans across all of the NBL segments compared to the prior quarter. The largest increases relate to the Other NBLs, HFF, and Technology & Innovation segments, which increased by $297 million, $53 million, and $37 million, respectively. During the last twelve months, each of the NBL segments have had increases in loans. The largest drivers of the increase were Other NBLs, HFF, and Technology & Innovation segments with increases of $849 million, $193 million, and $161 million, respectively. Total deposits for the NBL segments were $4.51 billion, an increase of $300 million during the quarter, and an increase of $1.05 billion during the last twelve months. The Technology & Innovation and HOA services segments each had increases of $260 million and $40 million, respectively. The increase of $1.05 billion during the last twelve months is the result of growth in the Technology & Innovation and HOA Services of $721 million and $328 million, respectively.

Pre-tax income for the NBL segments was $48.7 million for the three months ended June 30, 2018, an increase of $2.0 million from the three months ended March 31, 2018, and an increase of $6.1 million from the three months ended June 30, 2017. The increase in pre-tax income from the prior quarter relates primarily to the Technology & Innovation, HOA Services, and HFF segments, which increased by $1.6 million, $0.4 million, and $0.4 million, respectively. These increases were partially offset by a decrease in pre-tax income from the Other NBLs segment which had a decrease of $0.3 million. The primary drivers of the increase in pre-tax income from the same period in the prior year were the Other NBLs, Technology & Innovation, HFF, and HOA Services segments. These segments had increases of $2.8 million, $2.7 million, $2.6 million, and $1.6 million, respectively. These increases were partially offset by a decrease of $3.6 million in pre-tax income in the Public & Nonprofit segment. Pre-tax income for the NBL segments for the six months ended June 30, 2018 totaled $95.4 million, an increase of $15.3 million compared to the six months ended June 30, 2017. The largest increases in pre-tax income compared to the six months ended June 30, 2017 were in the Other NBLs, Technology & Innovation, HOA Services, and HFF segments. These segments had increases of $8.3 million, $6.2 million, $3.6 million, and $2.7 million, respectively. These increases were partially offset by a decrease of $5.5 million in the Public & Nonprofit segment.

Conference Call and Webcast

Western Alliance Bancorporation will host a conference call and live webcast to discuss its second quarter 2018 financial results at 12:00 p.m. ET on Friday, July 20, 2018. Participants may access the call by dialing 1-888-317-6003 and using passcode 5174586 or via live audio webcast using the website link https://services.choruscall.com/links/wal180720.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 July 20th through 9:00 a.m. ET August 20th by dialing 1-877-344-7529 passcode: 10121936.

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 six months ended June 30, 2018, the Company recognized a loss of $1.8 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 June 30,
20182017Change %
(in millions)
Total assets $ 21,367.5 $ 18,844.7 13.4 %
Gross loans, net of deferred fees 16,138.3 13,989.9 15.4
Securities and money market investments 3,688.7 3,283.0 12.4
Total deposits 18,087.5 16,031.1 12.8
Borrowings 75.0

NM

Qualifying debt 361.1 375.4 (3.8 )
Stockholders' equity 2,391.7 2,058.7 16.2
Tangible common equity, net of tax (1)

2,094.3

1,761.6 18.9
Selected Income Statement Data:

For the Three Months Ended June 30,

For the Six Months Ended June 30,
20182017Change %20182017Change %
(in thousands, except per share data)(in thousands, except per share data)
Interest income $ 251,602 $ 206,953 21.6 % $ 486,299 $ 399,218 21.8 %
Interest expense 27,494 14,210 93.5 47,971 27,166 76.6
Net interest income 224,108 192,743 16.3 438,328 372,052 17.8
Provision for credit losses 5,000 3,000 66.7 11,000 7,250 51.7
Net interest income after provision for credit losses 219,108 189,743 15.5 427,328 364,802 17.1
Non-interest income 13,444 10,601 26.8 25,087 21,200 18.3
Non-interest expense 102,548 88,420 16.0 200,697 176,247 13.9
Income before income taxes 130,004 111,924 16.2 251,718 209,755 20.0
Income tax expense 25,325 31,964 (20.8 ) 46,139 56,453 (18.3 )
Net income $ 104,679 $ 79,960 30.9 $ 205,579 $ 153,302 34.1
Diluted earnings per share $ 0.99 $ 0.76 30.3 $ 1.95 $ 1.46 33.6

(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 June 30,For the Six Months Ended June 30,
2018

2017

Change %

2018

2017

Change %

Diluted earnings per share

$

0.99

$

0.76

30.3

%

$

1.95

$

1.46

33.6

%

Book value per common share 22.59

19.53

15.7

Tangible book value per share, net of tax (1) 19.78

16.71

18.4

Average shares outstanding
(in thousands):
Basic 104,691

104,162

0.5

104,611

104,075

0.5

Diluted 105,420

105,045

0.4

105,372

104,941

0.4

Common shares outstanding 105,876

105,429

0.4

Selected Performance Ratios:
Return on average assets (2)

2.02

%

1.71

%

18.1

%

2.00

%

1.70

%

17.6

%

Return on average tangible common equity (1, 2) 20.41

18.42

10.8

20.43

18.14 12.6
Net interest margin (2)

4.70

4.61

2.0

4.65

4.62 0.6
Operating efficiency ratio - tax equivalent basis (1) 42.1

41.2

2.0

42.4

42.8

(0.9

)

Loan to deposit ratio 89.22

87.27

2.2

Asset Quality Ratios:
Net charge-offs (recoveries) to average loans outstanding (2)

0.07

%

(0.03

)%

NM

0.05

%

0.00

%

NM
Nonaccrual loans to gross loans 0.21

0.22

(4.5

)

Nonaccrual loans and repossessed assets to total assets 0.29

0.32

(9.4

)

Loans past due 90 days and still accruing to gross loans

0.03

NM

Allowance for credit losses to gross loans 0.91

0.94

(3.2

)

Allowance for credit losses to nonaccrual loans 432.38

438.33

(1.4

)

Capital Ratios (1):

Jun 30, 2018

Mar 31, 2018

Jun 30, 2017

Tangible common equity (1)

9.9

%

9.8

%

9.5

%

Common Equity Tier 1 (1), (3)

10.7

10.5

10.3

Tier 1 Leverage ratio (1), (3)

10.8

10.5

9.9

Tier 1 Capital (1), (3)

11.1

10.9

10.8

Total Capital (1), (3)

13.4

13.2

13.4

(1) See Reconciliation of Non-GAAP Financial Measures.

(2) Annualized for the three and six months ended June 30, 2018 and 2017.

(3) Capital ratios for June 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 June 30,Six Months Ended June 30,
2018201720182017
(dollars in thousands, except per share data)
Interest income:
Loans $ 222,035 $ 183,657 $ 427,994 $ 356,210
Investment securities 27,445 20,629 54,066 38,743
Other 2,122 2,667 4,239 4,265
Total interest income 251,602 206,953 486,299 399,218
Interest expense:
Deposits 19,849 9,645 34,022 18,057
Qualifying debt 5,695 4,493 10,664 8,831
Borrowings 1,950 72 3,285 278
Total interest expense 27,494 14,210 47,971 27,166
Net interest income 224,108 192,743 438,328 372,052
Provision for credit losses 5,000 3,000 11,000 7,250
Net interest income after provision for credit losses 219,108 189,743 427,328 364,802
Non-interest income:
Service charges and fees 5,672 5,203 11,417 9,941
Income from equity investments 2,517 1,318 3,977 2,010
Card income 2,033 1,516 4,005 3,008
Income from bank owned life insurance 1,167 973 2,095 1,921
Foreign currency income 1,181 832 2,383 1,874
Lending related income and gains (losses) on sale of loans, net 1,047 227 2,025 649
Gain (loss) on sales of investment securities, net (47 ) 588
Unrealized (losses) gains on assets measured at fair value, net (685 ) (1,759 ) (1 )
Other 512 579 944 1,210
Total non-interest income 13,444 10,601 25,087 21,200
Non-interest expenses:
Salaries and employee benefits 61,785 52,273 123,918 103,893
Legal, professional, and directors' fees 7,946 8,483 13,949 17,286
Occupancy 7,401 6,927 14,265 13,821
Data processing 5,586 4,375 10,793 9,639
Deposit costs 4,114 2,133 7,040 3,874
Insurance 3,885 3,589 7,754 6,817
Business development 1,414 1,447 3,142 3,510
Marketing 1,146 1,131 1,742 1,852
Card expense 1,081 861 2,023 1,592
Loan and repossessed asset expenses 1,017 1,098 1,600 2,376
Intangible amortization 399 488 797 1,177
Net (gain) loss on sales and valuations of repossessed and other assets (179 ) 231 (1,407 ) (312 )
Other 6,953 5,384 15,081 10,722
Total non-interest expense 102,548 88,420 200,697 176,247
Income before income taxes 130,004 111,924 251,718 209,755
Income tax expense 25,325 31,964 46,139 56,453
Net income $ 104,679 $ 79,960 $ 205,579 $ 153,302
Earnings per share:
Diluted shares 105,420 105,045 105,372 104,941
Diluted earnings per share $ 0.99 $ 0.76 $ 1.95 $ 1.46
Western Alliance Bancorporation and Subsidiaries
Five Quarter Condensed Consolidated Income Statements
Unaudited
Three Months Ended
Jun 30, 2018Mar 31, 2018Dec 31, 2017Sep 30, 2017Jun 30, 2017
(in thousands, except per share data)
Interest income:
Loans $ 222,035 $ 205,959 $ 200,204 $ 191,096 $ 183,657
Investment securities 27,445 26,621 26,312 23,584 20,629
Other 2,122 2,117 1,943 3,156 2,667
Total interest income 251,602 234,697 228,459 217,836 206,953
Interest expense:
Deposits 19,849 14,173 12,459 11,449 9,645
Qualifying debt 5,695 4,969 4,734 4,708 4,493
Borrowings 1,950 1,335 237 96 72
Total interest expense 27,494 20,477 17,430 16,253 14,210
Net interest income 224,108 214,220 211,029 201,583 192,743
Provision for credit losses 5,000 6,000 5,000 5,000 3,000
Net interest income after provision for credit losses 219,108 208,220 206,029 196,583 189,743
Non-interest income:
Service charges and fees 5,672 5,745 5,157 5,248 5,203
Income from equity investments 2,517 1,460 1,519 967 1,318
Card income 2,033 1,972 1,796 1,509 1,516
Income from bank owned life insurance 1,167 928 965 975 973
Foreign currency income 1,181 1,202 906 756 832
Lending related income and gains (losses) on sale of loans, net 1,047 978 1,466 97 227
Gain (loss) on sales of investment securities, net 1,436 319 (47 )
Unrealized (losses) gains on assets measured at fair value, net (685 ) (1,074 )
Other 512 432 443 585 579
Total non-interest income 13,444 11,643 13,688 10,456 10,601
Non-interest expenses:
Salaries and employee benefits 61,785 62,133 57,704 52,747 52,273
Legal, professional, and directors' fees 7,946 6,003 6,490 6,038 8,483
Occupancy 7,401 6,864 6,532 7,507 6,927
Data processing 5,586 5,207 5,062 4,524 4,375
Deposit costs 4,114 2,926 2,953 2,904 2,133
Insurance 3,885 3,869 3,687 3,538 3,589
Business development 1,414 1,728 1,179 1,439 1,447
Marketing 1,146 596 1,176 776 1,131
Card expense 1,081 942 855 966 861
Loan and repossessed asset expenses 1,017 583 978 1,263 1,098
Intangible amortization 399 398 408 489 488
Net (gain) loss on sales and valuations of repossessed and other assets (179 ) (1,228 ) (34 ) 266 231
Other 6,953 8,128 8,408 6,839 5,384
Total non-interest expense 102,548 98,149 95,398 89,296 88,420
Income before income taxes 130,004 121,714 124,319 117,743 111,924
Income tax expense 25,325 20,814 34,973 34,899 31,964
Net income $ 104,679 $ 100,900 $ 89,346 $ 82,844 $ 79,960
Earnings per share:
Diluted shares 105,420 105,324 105,164 104,942 105,045
Diluted earnings per share $ 0.99 $ 0.96 $ 0.85 $ 0.79 $ 0.76
Western Alliance Bancorporation and Subsidiaries
Five Quarter Condensed Consolidated Balance Sheets
Unaudited
Jun 30, 2018Mar 31, 2018Dec 31, 2017Sep 30, 2017Jun 30, 2017
(in millions, except per share data)
Assets:
Cash and due from banks $ 506.8 $ 439.4 $ 416.8 $ 650.4 $ 606.7
Securities and money market investments 3,688.7 3,734.3 3,820.4 3,773.6 3,283.0
Loans held for sale 16.3 16.7
Loans held for investment:
Commercial 7,278.4 6,944.4 6,841.4 6,735.9 6,318.5
Commercial real estate - non-owner occupied 4,010.6 3,925.3 3,904.0 3,628.4 3,649.1
Commercial real estate - owner occupied 2,270.5 2,264.6 2,241.6 2,047.5 2,021.2
Construction and land development 1,978.3 1,957.5 1,632.2 1,666.4 1,601.7
Residential real estate 545.3 418.1 425.9 376.7 334.8
Consumer 55.2 50.5 48.8 50.7 47.9
Gross loans, net of deferred fees 16,138.3 15,560.4 15,093.9 14,505.6 13,973.2
Allowance for credit losses (147.1 ) (144.7 ) (140.0 ) (136.4 ) (131.8 )
Loans, net 15,991.2 15,415.7 14,953.9 14,369.2 13,841.4
Premises and equipment, net 115.4 116.7 118.7 120.1 120.5
Other assets acquired through foreclosure, net 27.5 30.2 28.5 29.0 31.0
Bank owned life insurance 168.7 168.6 167.8 166.8 166.4
Goodwill and other intangibles, net 300.0 300.4 300.7 301.2 301.6
Other assets 569.2 555.4 522.3 495.6 477.4
Total assets $ 21,367.5 $ 20,760.7 $ 20,329.1 $ 19,922.2 $ 18,844.7
Liabilities and Stockholders' Equity:
Liabilities:
Deposits
Non-interest bearing demand deposits $ 7,947.9 $ 7,502.0 $ 7,434.0 $ 7,608.7 $ 6,859.4
Interest bearing:
Demand 1,864.6 1,776.3 1,586.2 1,406.4 1,480.8
Savings and money market 6,468.8 6,314.9 6,330.9 6,300.2 6,104.0
Time certificates 1,806.2 1,761.3 1,621.4 1,589.5 1,586.9
Total deposits 18,087.5 17,354.5 16,972.5 16,904.8 16,031.1
Customer repurchase agreements 18.0 21.7 26.0 26.1 32.7
Total customer funds 18,105.5 17,376.2 16,998.5 16,930.9 16,063.8
Borrowings 75.0 300.0 390.0
Qualifying debt 361.1 363.9 376.9 372.9 375.4
Accrued interest payable and other liabilities 434.2 426.9 333.9 472.8 346.8
Total liabilities 18,975.8 18,467.0 18,099.3 17,776.6 16,786.0
Stockholders' Equity:
Common stock and additional paid-in capital 1,387.9 1,385.0 1,384.4 1,378.8 1,376.4
Retained earnings 1,055.1 950.4 848.5 758.6 675.8
Accumulated other comprehensive (loss) income (51.3 ) (41.7 ) (3.1 ) 8.2 6.5
Total stockholders' equity 2,391.7 2,293.7 2,229.8 2,145.6 2,058.7
Total liabilities and stockholders' equity $ 21,367.5 $ 20,760.7 $ 20,329.1 $ 19,922.2 $ 18,844.7
Western Alliance Bancorporation and Subsidiaries
Changes in the Allowance For Credit Losses
Unaudited
Three Months Ended
Jun 30, 2018Mar 31, 2018Dec 31, 2017Sep 30, 2017Jun 30, 2017
(in thousands)
Balance, beginning of period $ 144,659 $ 140,050 $ 136,421 $ 131,811 $ 127,649
Provision for credit losses 5,000 6,000 5,000 5,000 3,000
Recoveries of loans previously charged-off:
Commercial and industrial 916 459 406 619 1,759
Commercial real estate - non-owner occupied 15 105 58 1,168 360
Commercial real estate - owner occupied 231 21 119 613 46
Construction and land development 8 1,388 218 226 508
Residential real estate 141 250 120 108 1,299
Consumer 14 10 3 33
Total recoveries 1,325 2,233 924 2,767 3,972
Loans charged-off:
Commercial and industrial 2,778 3,517 2,019 2,921 651
Commercial real estate - non-owner occupied 232 275 175 1,808
Commercial real estate - owner occupied 11
Construction and land development 1
Residential real estate 885 107 332
Consumer 5 1 61 8
Total loans charged-off 3,901 3,624 2,295 3,157 2,810
Net loan charge-offs (recoveries) 2,576 1,391 1,371 390 (1,162 )
Balance, end of period $ 147,083 $ 144,659 $ 140,050 $ 136,421 $ 131,811

Net charge-offs (recoveries) to average loans-annualized

0.07 % 0.04 % 0.04 % 0.01 % (0.03 )%
Allowance for credit losses to gross loans 0.91 % 0.93 % 0.93 % 0.94 % 0.94 %
Allowance for credit losses to gross organic loans 0.99 1.02 1.03 1.06 1.08
Allowance for credit losses to nonaccrual loans 432.38 387.86 318.84 248.07 438.33
Nonaccrual loans $ 34,017 $ 37,297 $ 43,925 $ 54,994 $ 30,071
Nonaccrual loans to gross loans 0.21 % 0.24 % 0.29 % 0.38 % 0.22 %
Repossessed assets $ 27,541 $ 30,194 $ 28,540 $ 28,973 $ 30,988
Nonaccrual loans and repossessed assets to total assets 0.29 % 0.33 % 0.36 % 0.42 % 0.32 %
Loans past due 90 days, still accruing $ $ 37 $ 43 $ 44 $ 4,021
Loans past due 90 days and still accruing to gross loans % 0.00 % 0.00 % 0.00 % 0.03 %
Loans past due 30 to 89 days, still accruing $ 1,545 $ 6,479 $ 10,142 $ 5,179 $ 4,071
Loans past due 30 to 89 days, still accruing to gross loans 0.01 % 0.04 % 0.07 % 0.04 % 0.03 %
Special mention loans $ 150,278 $ 184,702 $ 155,032 $ 199,965 $ 141,036
Special mention loans to gross loans 0.93 % 1.19 % 1.03 % 1.38 % 1.01 %
Classified loans on accrual $ 156,659 $ 126,538 $ 127,681 $ 122,264 $ 165,715
Classified loans on accrual to gross loans 0.97 % 0.81 % 0.85 % 0.84 % 1.19 %
Classified assets $ 240,063 $ 213,482 $ 222,004 $ 221,803 $ 249,491
Classified assets to total assets 1.12 % 1.03 % 1.09 % 1.11 % 1.32 %
Western Alliance Bancorporation and Subsidiaries
Analysis of Average Balances, Yields and Rates
Unaudited
Three Months Ended
June 30, 2018March 31, 2018
Average
Balance
InterestAverage Yield /
Cost
Average
Balance
Interest

Average Yield /
Cost

($ in millions)($ in thousands)($ in millions)($ in thousands)
Interest earning assets
Loans:
Commercial $ 6,902.5 $ 94,243 5.64 % $ 6,580.9 $ 85,547 5.38 %
CRE - non-owner occupied 3,964.2 59,373 6.01 3,920.8 56,285 5.76
CRE - owner occupied 2,242.6 28,698 5.23 2,241.8 28,551 5.21
Construction and land development 1,952.0 33,567 6.89 1,789.4 29,619 6.63
Residential real estate 433.4 5,414 5.00 425.3 5,280 4.97
Consumer 52.4 740 5.65 47.9 677 5.65
Total loans (1), (2), (3) 15,547.1 222,035 5.81 15,006.1 205,959 5.59
Securities:
Securities - taxable 2,802.9 19,274 2.75 2,875.3 19,149 2.66
Securities - tax-exempt 848.7 8,171 4.81 836.9 7,472 4.47
Total securities (1) 3,651.6 27,445 3.23 3,712.2 26,621 3.07
Cash and other 382.5 2,122 2.22 425.7 2,117 1.99
Total interest earning assets 19,581.2 251,602 5.26 19,144.0 234,697 5.02
Non-interest earning assets
Cash and due from banks 145.0 142.3
Allowance for credit losses (145.6 ) (141.0 )
Bank owned life insurance 168.3 168.1
Other assets 1,010.7 990.8
Total assets $ 20,759.6 $ 20,304.2
Interest-bearing liabilities
Interest-bearing deposits:
Interest-bearing transaction accounts $ 1,824.7 $ 2,360 0.52 % $ 1,654.7 $ 1,380 0.33 %
Savings and money market 6,126.3 12,324 0.80 6,226.7 8,915 0.57
Time certificates of deposit 1,714.8 5,165 1.20 1,579.9 3,878 0.98
Total interest-bearing deposits 9,665.8 19,849 0.82 9,461.3 14,173 0.60
Short-term borrowings 413.2 1,950 1.89 351.6 1,335 1.52
Qualifying debt 362.8 5,695 6.28 368.8 4,969 5.39
Total interest-bearing liabilities 10,441.8 27,494 1.05 10,181.7 20,477 0.80
Non-interest-bearing liabilities
Non-interest-bearing demand deposits 7,612.0 7,510.6
Other liabilities 354.0 338.5
Stockholders’ equity 2,351.8 2,273.4
Total liabilities and stockholders' equity $ 20,759.6 $ 20,304.2
Net interest income and margin (4) $ 224,108 4.70 % $ 214,220 4.60 %
(1) Yields on loans and securities have been adjusted to a tax equivalent basis. The tax equivalent adjustment was $5.9 million and $5.7 million for the three months ended June 30, 2018 and March 31, 2018, respectively.
(2) Included in the yield computation are net loan fees of $11.0 million and accretion on acquired loans of $5.1 million for the three months ended June 30, 2018, compared to $10.0 million and $5.7 million for the three months ended March 31, 2018, respectively.
(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 June 30,
20182017

Average
Balance

Interest

Average Yield /
Cost

Average
Balance
InterestAverage Yield /
Cost
($ in millions)($ in thousands)($ in millions)($ in thousands)
Interest earning assets
Loans:
Commercial $ 6,902.5 $ 94,243 5.64 % $ 6,071.6 $ 76,000 5.39

%

CRE - non-owner occupied 3,964.2 59,373 6.01 3,606.8 52,416 5.84
CRE - owner occupied 2,242.6 28,698 5.23 2,019.5 25,931 5.43
Construction and land development 1,952.0 33,567 6.89 1,605.6 24,965 6.24
Residential real estate 433.4 5,414 5.00 322.2 3,950 4.90
Consumer 52.4 740 5.65 44.7 395 3.53
Total loans (1), (2), (3) 15,547.1 222,035 5.81 13,670.4 183,657 5.60
Securities:
Securities - taxable 2,802.9 19,274 2.75 2,446.5 14,847 2.43
Securities - tax-exempt 848.7 8,171 4.81 628.0 5,782 5.48
Total securities (1) 3,651.6 27,445 3.23 3,074.5 20,629 3.05
Cash and other 382.6 2,122 2.22 903.3 2,667 1.18
Total interest earning assets 19,581.3 251,602 5.26 17,648.2 206,953 4.93
Non-interest earning assets
Cash and due from banks 145.0 140.3
Allowance for credit losses (145.6 ) (130.0 )
Bank owned life insurance 168.3 165.8
Other assets 1,010.6 919.6
Total assets $ 20,759.6 $ 18,743.9
Interest-bearing liabilities
Interest-bearing deposits:
Interest-bearing transaction accounts $ 1,824.7 $ 2,360 0.52 % $ 1,492.7 $ 986 0.26 %
Savings and money market 6,126.3 12,324 0.80 6,155.8 5,831 0.38
Time certificates of deposit 1,714.8 5,165 1.20 1,576.0 2,828 0.72
Total interest-bearing deposits 9,665.8 19,849 0.82 9,224.5 9,645 0.42
Short-term borrowings 413.2 1,950 1.89 34.6 72 0.83
Qualifying debt 362.8 5,695 6.28 359.3 4,493 5.00
Total interest-bearing liabilities 10,441.8 27,494 1.05 9,618.4 14,210 0.59
Non-interest-bearing liabilities
Non-interest-bearing demand deposits 7,612.0 6,735.3
Other liabilities 354.0 351.7
Stockholders’ equity 2,351.8 2,038.5
Total liabilities and stockholders' equity $ 20,759.6 $ 18,743.9
Net interest income and margin (4) $ 224,108 4.70 % $ 192,743 4.61 %
Net interest margin, adjusted (5) 4.49 %
(1) Yields on loans and securities have been adjusted to a tax equivalent basis. The tax equivalent adjustment was $5.9 million and $10.4 million for the three months ended June 30, 2018 and 2017, respectively.
(2) Included in the yield computation are net loan fees of $11.0 million and accretion on acquired loans of $5.1 million for the three months ended June 30, 2018, compared to $10.0 million and $7.1 million for the three months ended June 30, 2017, respectively.
(3) Includes non-accrual loans.
(4) Net interest margin is computed by dividing net interest income by total average earning assets.
(5) Prior period net interest margin is adjusted to include the effects from the TCJA of the lower statutory corporate federal tax rate on the calculation of the tax equivalent adjustment in order to be comparable to the current period.
Western Alliance Bancorporation and Subsidiaries
Analysis of Average Balances, Yields and Rates
Unaudited
Six Months Ended June 30,
20182017
Average
Balance
InterestAverage Yield /
Cost
Average
Balance
InterestAverage Yield /
Cost
($ in millions)($ in thousands)($ in millions)($ in thousands)
Interest earning assets
Loans:
Commercial $ 6,742.6 $ 179,789 5.51 % $ 5,908.0 $ 144,346 5.28 %
CRE - non-owner occupied 3,942.6 115,659 5.88 3,585.9 106,277 5.95
CRE - owner occupied 2,242.2 57,249 5.22 2,008.8 50,658 5.28
Construction and land development 1,871.1 63,186 6.76 1,558.5 47,067 6.05
Residential real estate 429.4 10,694 4.98 297.2 6,974 4.69
Consumer 50.2 1,417 5.65 41.6 888 4.27
Total loans (1), (2), (3) 15,278.1 427,994 5.70 13,400.0 356,210 5.53
Securities:
Securities - taxable 2,838.9 38,423 2.71 2,276.8 27,285 2.40
Securities - tax-exempt 842.8 15,643 4.64 616.2 11,458 5.52
Total securities (1) 3,681.7 54,066 3.15 2,893.0 38,743 3.06
Cash and other 404.0 4,239 2.10 693.8 4,265 1.23
Total interest earning assets 19,363.8 486,299 5.14 16,986.8 399,218 4.94
Non-interest earning assets
Cash and due from banks 143.7 141.5
Allowance for credit losses (143.3 ) (127.9 )
Bank owned life insurance 168.2 165.3
Other assets 1,000.8 910.1
Total assets $ 20,533.2 $ 18,075.8
Interest-bearing liabilities
Interest-bearing deposits:
Interest-bearing transaction accounts $ 1,740.2 $ 3,741 0.43 % $ 1,463.9 $ 1,791 0.24 %
Savings and money market 6,176.2 21,238 0.69 6,112.7 11,143 0.36
Time certificates of deposit 1,647.7 9,043 1.10 1,530.7 5,123 0.67
Total interest-bearing deposits 9,564.1 34,022 0.71 9,107.3 18,057 0.40
Short-term borrowings 382.6 3,285 1.72 72.5 278 0.77
Qualifying debt 365.8 10,664 5.83 356.6 8,831 4.95
Total interest-bearing liabilities 10,312.5 47,971 0.93 9,536.4 27,166 0.57
Non-interest-bearing liabilities
Non-interest-bearing demand deposits 7,561.6 6,230.1
Other liabilities 346.3 316.4
Stockholders’ equity 2,312.8 1,992.9
Total liabilities and stockholders' equity $ 20,533.2 $ 18,075.8
Net interest income and margin (4) $ 438,328 4.65 % $ 372,052 4.62 %
Net interest margin, adjusted (5) 4.50 %
(1) Yields on loans and securities have been adjusted to a tax equivalent basis. The tax equivalent adjustment was $11.7 million and $20.1 million for the six months ended June 30, 2018 and 2017, respectively.
(2) Included in the yield computation are net loan fees of $20.9 million and accretion on acquired loans of $10.8 million for the six months ended June 30, 2018, compared to $16.6 million and $13.5 million for the six months ended June 30, 2017, respectively.
(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 June 30, 2018:(dollars in millions)
Assets:
Cash, cash equivalents, and investment securities $ 4,195.5 $ 1.8 $ 8.3 $ 2.2 $ 2.0
Loans, net of deferred loan fees and costs 16,138.3 3,557.6 1,850.7 2,027.8 1,285.4
Less: allowance for credit losses (147.1 ) (33.4 ) (17.8 ) (20.4 ) (10.9 )
Total loans 15,991.2 3,524.2 1,832.9 2,007.4 1,274.5
Other assets acquired through foreclosure, net 27.5 2.3 14.1
Goodwill and other intangible assets, net 300.0 23.2 156.1
Other assets 853.3 45.8 58.0 14.5 18.2
Total assets $ 21,367.5 $ 3,574.1 $ 1,936.5 $ 2,024.1 $ 1,450.8
Liabilities:
Deposits $ 18,087.5 $ 5,269.3 $ 3,762.3 $ 2,303.2 $ 1,784.3
Borrowings and qualifying debt 436.1
Other liabilities 452.2 9.0 14.8 1.7 11.6
Total liabilities 18,975.8 5,278.3 3,777.1 2,304.9 1,795.9
Allocated equity: 2,391.7 434.7 261.3 228.8 301.7
Total liabilities and stockholders' equity $ 21,367.5 $ 5,713.0 $ 4,038.4 $ 2,533.7 $ 2,097.6
Excess funds provided (used) 2,138.9 2,101.9 509.6 646.8
No. of offices 47 10 16 9 3
No. of full-time equivalent employees 1,773 124 98 116 130
Income Statement:
Three Months Ended June 30, 2018:(in thousands)
Net interest income $ 224,108 $ 57,977 $ 35,276 $ 27,664 $ 23,001
Provision for (recovery) credit losses 5,000 518 (243 ) (276 ) 13
Net interest income after provision for credit losses 219,108 57,459 35,519 27,940 22,988
Non-interest income 13,444 2,256 2,679 966 2,421
Non-interest expense (102,548 ) (22,419 ) (15,931 ) (14,491 ) (13,429 )
Income (loss) before income taxes 130,004 37,296 22,267 14,415 11,980
Income tax expense (benefit) 25,325 9,324 4,676 4,036 3,355
Net income $ 104,679 $ 27,972 $ 17,591 $ 10,379 $ 8,625
Six Months Ended June 30, 2018:(in thousands)
Net interest income $ 438,328 $ 112,532 $ 71,966 $ 55,466 $ 45,256
Provision for (recovery of) credit losses 11,000 1,952 (1,967 ) 454 1,561
Net interest income after provision for credit losses 427,328 110,580 73,933 55,012 43,695
Non-interest income 25,087 3,672 6,012 1,967 4,969
Non-interest expense (200,697 ) (43,923 ) (30,015 ) (28,137 ) (25,932 )
Income (loss) before income taxes 251,718 70,329 49,930 28,842 22,732
Income tax expense (benefit) 46,139 17,645 10,579 8,171 6,452
Net income $ 205,579 $ 52,684 $ 39,351 $ 20,671 $ 16,280
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 June 30, 2018:(dollars in millions)
Assets:
Cash, cash equivalents, and investment securities $ $ $ $ $ $ 4,181.2
Loans, net of deferred loan fees and costs 186.5 1,566.1 1,205.4 1,431.9 3,022.1 4.8
Less: allowance for credit losses (1.8 ) (15.2 ) (11.2 ) (7.1 ) (29.2 ) (0.1 )
Total loans 184.7 1,550.9 1,194.2 1,424.8 2,992.9 4.7
Other assets acquired through foreclosure, net 11.1
Goodwill and other intangible assets, net 120.6 0.1
Other assets 0.9 21.0 5.3 6.5 13.8 669.3
Total assets $ 185.6 $ 1,571.9 $ 1,320.1 $ 1,431.4 $ 3,006.7 $ 4,866.3
Liabilities:
Deposits $ 2,514.9 $ $ 1,993.5 $ $ $ 460.0
Borrowings and qualifying debt 436.1
Other liabilities 2.1 17.7 0.1 (0.4 ) 103.0 292.6
Total liabilities 2,517.0 17.7 1,993.6 (0.4 ) 103.0 1,188.7
Allocated equity: 67.1 125.3 257.8 117.8 248.0 349.2
Total liabilities and stockholders' equity $ 2,584.1 $ 143.0 $ 2,251.4 $ 117.4 $ 351.0 $ 1,537.9
Excess funds provided (used) 2,398.5 (1,428.9 ) 931.3 (1,314.0 ) (2,655.7 ) (3,328.4 )
No. of offices 1 1 9 1 4 (7 )
No. of full-time equivalent employees 65 11 56 17 42 1,114
Income Statement:
Three Months Ended June 30, 2018:(in thousands)
Net interest income $ 16,046 $ 3,794 $ 24,562 $ 13,874 $ 19,672 $ 2,242
Provision for (recovery) credit losses 135 (27 ) 2,256 548 2,074 2
Net interest income after provision for credit losses 15,911 3,821 22,306 13,326 17,598 2,240
Non-interest income 179 3,630 409 904
Non-interest expense (8,033 ) (2,080 ) (9,899 ) (2,200 ) (6,250 ) (7,816 )
Income (loss) before income taxes 8,057 1,741 16,037 11,126 11,757 (4,672 )
Income tax expense (benefit) 1,853 401 3,688 2,559 2,704 (7,271 )
Net income $ 6,204 $ 1,340 $ 12,349 $ 8,567 $ 9,053 $ 2,599
Six Months Ended June 30, 2018:(in thousands)
Net interest income $ 31,405 $ 7,539 $ 47,383 $ 28,060 $ 38,484 $ 237
Provision for (recovery of) credit losses 182 (233 ) 3,907 1,783 3,359 2
Net interest income after provision for credit losses 31,223 7,772 43,476 26,277 35,125 235
Non-interest income 328 6,681 13 633 812
Non-interest expense (15,836 ) (4,254 ) (19,733 ) (4,405 ) (11,912 ) (16,550 )
Income (loss) before income taxes 15,715 3,518 30,424 21,885 23,846 (15,503 )
Income tax expense (benefit) 3,615 809 6,998 5,033 5,484 (18,647 )
Net income $ 12,100 $ 2,709 $ 23,426 $ 16,852 $ 18,362 $ 3,144
Western Alliance Bancorporation and Subsidiaries
Operating Segment Results
Unaudited
Balance Sheet:

Regional Segments

Consolidated
Company

Arizona

Nevada

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 June 30, 2017:(in thousands)
Net interest income (expense) $ 192,743 $ 49,295 $ 36,422 $ 29,058 $ 19,719
Provision for (recovery of) credit losses 3,000 384 (3,123 ) (53 )

698
Net interest income (expense) after provision for credit losses 189,743 48,911 39,545 29,111

19,021
Non-interest income 10,601 1,189 2,313 888

1,930
Non-interest expense (88,420 ) (17,922

)

(15,115 ) (13,020 )

(12,162 )
Income (loss) before income taxes 111,924 32,178 26,743 16,979

8,789
Income tax expense (benefit) 31,964 12,624 9,360 7,140

3,696
Net income $ 79,960 $ 19,554 $ 17,383 $ 9,839 $ 5,093
Six Months Ended June 30, 2017:(in thousands)
Net interest income (expense) $ 372,052 $ 93,202 $ 71,718 $ 54,276 $ 41,754
Provision for (recovery of) credit losses 7,250 398 (3,334 ) 38

1,094
Net interest income (expense) after provision for credit losses 364,802 92,804 75,052 54,238

40,660
Non-interest income 21,200 2,302 4,446 1,631

4,043
Non-interest expense (176,247 ) (36,544

)

(30,985 ) (25,723 )

(24,871 )
Income (loss) before income taxes 209,755 58,562 48,513 30,146

19,832
Income tax expense (benefit) 56,453 22,974 16,980 12,677

8,339
Net income $ 153,302 $ 35,588 $ 31,533 $ 17,469 $ 11,493
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 June 30, 2017:(in thousands)
Net interest income (expense) $ 13,781 $ 7,488 $ 21,029 $ 13,410 $ 15,304 $ (12,763 )
Provision for (recovery of) credit losses 165 196 603 1,808 2,322
Net interest income (expense) after provision for credit losses 13,616 7,292 20,426 11,602 12,982 (12,763 )
Non-interest income 140 162 1,961 532 1,486
Non-interest expense (7,258 ) (2,146 ) (9,082 ) (3,056 ) (4,566 ) (4,093 )
Income (loss) before income taxes 6,498 5,308 13,305 8,546 8,948 (15,370 )
Income tax expense (benefit) 2,436 1,994 4,989 3,205 3,356 (16,836 )
Net income $ 4,062 $ 3,314 $ 8,316 $ 5,341 $ 5,592 $ 1,466
Six Months Ended June 30, 2017:(in thousands)
Net interest income (expense) $ 26,529 $ 13,973 $ 39,195 $ 26,991 $ 29,447 $ (25,033 )
Provision for (recovery of) credit losses 292 705 899 1,808 5,849 (499 )
Net interest income (expense) after provision for credit losses 26,237 13,268 38,296 25,183 23,598 (24,534 )
Non-interest income 281 232 3,834 1,253 3,178
Non-interest expense (14,405 ) (4,469 ) (17,861 ) (6,044 ) (9,287 ) (6,058 )
Income (loss) before income taxes 12,113 9,031 24,269 19,139 15,564 (27,414 )
Income tax expense (benefit) 4,542 3,396 9,100 7,177 5,837 (34,569 )
Net income $ 7,571 $ 5,635 $ 15,169 $ 11,962 $ 9,727 $ 7,155
Western Alliance Bancorporation and Subsidiaries
Reconciliation of Non-GAAP Financial Measures
Unaudited
Operating Pre-Provision Net Revenue by Quarter:
Three Months Ended
Jun 30, 2018Mar 31, 2018Dec 31, 2017

Sep 30, 2017

Jun 30, 2017

(in thousands)
Total non-interest income $ 13,444 $ 11,643 $ 13,688

$

10,456

$ 10,601
Less:
Gains (losses) on sales of investment securities, net 1,436

319

(47 )
Unrealized (losses) gains on assets measured at fair value, net (685 ) (1,074 )
Total operating non-interest income 14,129 12,717 12,252 10,137 10,648
Plus: net interest income 224,108 214,220 211,029 201,583 192,743
Net operating revenue (1) $ 238,237 $ 226,937 $ 223,281 $ 211,720 $ 203,391
Total non-interest expense $ 102,548 $ 98,149 $ 95,398 $ 89,296 $ 88,420
Less:
Net (gain) loss on sales and valuations of repossessed and other assets (179 ) (1,228 ) (34 ) 266 231
Total operating non-interest expense (1) $ 102,727 $ 99,377 $ 95,432 $ 89,030 $ 88,189
Operating pre-provision net revenue (2) $ 135,510 $ 127,560 $ 127,849 $ 122,690 $ 115,202
Plus:
Non-operating revenue adjustments (685 ) (1,074 ) 1,436 319 (47 )
Less:
Provision for credit losses 5,000 6,000 5,000 5,000 3,000
Non-operating expense adjustments (179 ) (1,228 ) (34 ) 266 231
Income tax expense 25,325 20,814 34,973 34,899 31,964
Net income $ 104,679 $ 100,900 $ 89,346 $ 82,844 $ 79,960
(1), (2) See Non-GAAP Financial Measures footnotes.

Western Alliance Bancorporation and Subsidiaries

Reconciliation of Non-GAAP Financial Measures

Unaudited

Tangible Common Equity:

Jun 30, 2018

Mar 31, 2018

Dec 31, 2017

Sep 30, 2017

Jun 30, 2017

(dollars and shares in thousands)
Total stockholders' equity $ 2,391,684 $ 2,293,763 $ 2,229,698 $ 2,145,627 $ 2,058,674
Less: goodwill and intangible assets 299,951 300,350 300,748 301,157 301,645
Total tangible common equity 2,091,733 1,993,413 1,928,950 1,844,470 1,757,029
Plus: deferred tax - attributed to intangible assets

2,555

2,773 2,698 4,341 4,550
Total tangible common equity, net of tax $

2,094,288

$ 1,996,186 $ 1,931,648 $ 1,848,811 $ 1,761,579
Total assets $ 21,367,452 $ 20,760,731 $ 20,329,085 $ 19,922,221 $ 18,844,745
Less: goodwill and intangible assets, net 299,951 300,350 300,748 301,157 301,645
Tangible assets 21,067,501 20,460,381 20,028,337 19,621,064 18,543,100
Plus: deferred tax - attributed to intangible assets

2,555

2,773 2,698 4,341 4,550
Total tangible assets, net of tax $

21,070,056

$ 20,463,154 $ 20,031,035 $ 19,625,405 $ 18,547,650
Tangible common equity ratio (3) 9.9 % 9.8 % 9.6 % 9.4 % 9.5 %
Common shares outstanding 105,876 105,861 105,487 105,493 105,429
Tangible book value per share, net of tax (4) $ 19.78 $ 18.86 $ 18.31 $ 17.53 $ 16.71

(1), (2), (3), (4) See Non-GAAP Financial Measures footnotes.

Western Alliance Bancorporation and Subsidiaries

Reconciliation of Non-GAAP Financial Measures

Unaudited

Operating Efficiency Ratio by Quarter:

Three Months Ended

Jun 30, 2018Mar 31, 2018Dec 31, 2017Sep 30, 2017Jun 30, 2017
(in thousands)
Total operating non-interest expense $ 102,727 $ 99,377 $ 95,432 $ 89,030 $ 88,189
Divided by:
Total net interest income 224,108 214,220 211,029 201,583 192,743
Plus:
Tax equivalent interest adjustment 5,939 5,727 11,023 10,837 10,453
Operating non-interest income 14,129 12,717 12,252 10,137 10,648
$ 244,176 $ 232,664 $ 234,304 $ 222,557 $ 213,844
Operating efficiency ratio - tax equivalent basis (5) 42.1 % 42.7 % 40.7 % 40.0 % 41.2 %
Operating efficiency ratio - adjusted * 41.7 % 41.0 % 42.3 %
(5)

See Non-GAAP Financial Measures footnotes.

* The prior period 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

Regulatory Capital:

Jun 30, 2018

Dec 31, 2017

(in thousands)

Common Equity Tier 1:
Common equity $ 2,391,684 $ 2,229,698
Less:
Non-qualifying goodwill and intangibles

297,281

296,421
Disallowed deferred tax asset

845

638
AOCI related adjustments

(61,268 )

(9,496 )
Unrealized gain on changes in fair value liabilities

13,958

7,785
Common equity Tier 1 (6) (9) $ 2,140,868 $ 1,934,350
Divided by: estimated risk-weighted assets (7) (9) $

19,976,546

$ 18,569,608
Common equity Tier 1 ratio (7) (9)

10.7 %

10.4 %
Common equity Tier 1 (6)(9)

2,140,868

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) $ 2,222,368 $ 2,013,744
Divided by: Tangible average assets $ 20,540,076 $ 19,624,517
Tier 1 leverage ratio

10.8 %

10.3 %
Total Capital:
Tier 1 capital (6) (9) $ 2,222,368 $ 2,013,744
Plus:
Subordinated debt

299,447

301,020
Qualifying allowance for credit losses

147,083

140,050
Other

7,567

6,174
Less: Tier 2 qualifying capital deductions

Tier 2 capital $

454,097

$ 447,244
Total capital $

2,676,465

$ 2,460,988
Total capital ratio

13.4 %

13.3 %
Classified assets to Tier 1 capital plus allowance for credit losses:
Classified assets $ 240,063 $ 222,004
Divided by:
Tier 1 capital (7) (9)

2,222,368

2,013,744
Plus: Allowance for credit losses

147,083

140,050
Total Tier 1 capital plus allowance for credit losses $ 2,369,451 $ 2,153,794
Classified assets to Tier 1 capital plus allowance (8) (9)

10.1 %

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 an important metric with which to analyze and evaluate financial condition and capital strength.
(4) 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.
(5) We believe this non-GAAP ratio provides a useful metric to measure the operating efficiency of the Company.
(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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