Western Alliance Bancorporation (WAL)

[Enterprising Investor]

WAL Reports Third Quarter 2012 Net Income of $15.5 million, or $0.18 per share, and Completion of Acquisition of Western Liberty Bancorp (10/18/12)

PHOENIX--(BUSINESS WIRE)--Western Alliance Bancorporation (NYSE: WAL) announced today its financial results for the third quarter 2012.

Third Quarter 2012 Highlights:

• Net income of $15.5 million, an increase of 10.7% compared to $14.0 million for the second quarter 2012 and an increase of 18.8% compared to $13.0 million for the third quarter 2011

• Net income of $16.6 million for the third quarter 2012, excluding $3.4 million goodwill and intangible impairment, $0.8 million gain on sale of minority interest, $1.0 million gains on sales of investment securities, and $0.5 million unrealized fair value gains on trust preferred

• Earnings per share of $0.18, an increase of 20% compared to $0.15 per share for the second quarter 2012 and more than triple the $0.04 per share in the third quarter 2011

• Earnings per share of $0.20 per share for the third quarter 2012, excluding $0.05 per share goodwill and intangible impairment, $0.01 per share gain on sale of minority interest and $0.02 per share from gains on sales of investment securities and unrealized fair value gains on trust preferred

• Pre-tax, pre-provision operating earnings of $33.4 million, up from $32.1 million in second quarter 2012 and up 18.9% from $28.1 million in third quarter 20111

• Net interest margin of 4.41% compared to 4.46% in the second quarter of 2012 and 4.29% in the third quarter 2011

• Total loans of $5.33 billion, up $168 million from June 30, 2012, and up $806 million from September 30, 2011

• Total deposits of $6.16 billion, up $161 million from June 30, 2012 and up $529 million from September 30, 2011

• Nonperforming assets (nonaccrual loans and repossessed assets) increased to 2.7% of total assets from 2.5% in second quarter 2012 and decreased from 3.1% in third quarter 2011

• Net loan charge-offs (annualized) to average loans outstanding declined to 0.70% from 1.11% in the second quarter 2012 and 1.40% in the third quarter of 2011

• Tier I Leverage capital of 9.7% and Total Risk-Based Capital ratio of 12.3%, compared to 9.8% and 13.2% a year ago

• Total equity of $698.0 million, up $25.9 million from June 30, 2012 and up $61.3 million from December 31, 2011

Financial Performance

“This was an exceptional quarter for Western Alliance,” said Robert Sarver, Chairman and Chief Executive Officer of Western Alliance Bancorporation. “Loans grew for the 10th consecutive quarter and deposits were up for the 11th, driving our top line revenue up 9.7% from the third quarter of 2011. In fact, recently released FDIC data shows that the Company is growing twice as fast as the market in Arizona and San Diego. Meanwhile, we held our expenses in check and our credit costs fell, propelling a substantial rise in earnings per share.

“I’d also like to welcome the customers of Service1st Bank of Nevada to our Company. Service1st Bank became part of Western Alliance with the close of our merger with Western Liberty Bancorp yesterday. We expect to merge Service1st into Bank of Nevada at the end of this month and complete the systems integration in December. This will give our new clients access to the larger branch network as well as other services offered by Bank of Nevada and its affiliates.”

Ken Vecchione, President and Chief Operating Officer, added, “Our improved operating leverage from exceptional revenue growth and continued expense control took our efficiency ratio below 55% for the first time during the quarter. Although non-performing assets rose, we’re pleased with the lower charge-offs and other real estate losses incurred, which we believe reflect continued recovery in our primary markets. Record efficiency combined with lower credit costs enabled us to increase earnings per share to 18 cents, up 20% from the second quarter.”

Western Alliance Bancorporation reported net income of $15.5 million, or $0.18 per share, in the third quarter 2012 including a $0.1 million charge from repossessed assets valuations/sales, $3.4 million of goodwill and intangible impairment charges, a $0.8 million gain from sale of minority interest and a $1.0 million gain from securities sales.

Total loans increased $168 million, or 3.3 percent, to $5.33 billion at September 30, 2012 from $5.16 billion on June 30, 2012. This increase was primarily driven by growth in commercial and industrial loans and construction and land development loans. Loans increased $806 million from September 30, 2011.

Total deposits increased $161 million, or 2.7 percent, to $6.16 billion at September 30, 2012 from $6.0 billion at June 30, 2012, with growth primarily in money market accounts, certificates of deposits and savings accounts partially offset by declines in interest bearing demand and non-interest bearing demand. Deposits increased $529 million from September 30, 2011.

Income Statement

Net interest income of $71.9 million in the third quarter 2012, an increase of 1.6 percent compared to the second quarter 2012 and 11.4 percent compared to the third quarter 2011. The Company’s net interest margin in the third quarter 2012 was 4.41 percent compared to 4.46 percent in the second quarter 2012 and 4.29 percent in the third quarter 2011.

Operating non-interest income was $5.4 million for the third quarter 2012, a decrease from $5.8 million for the second quarter of 2012 and $5.9 million for the third quarter of 2011.1

Net revenue was $77.3 million for the third quarter 2012, up from $76.6 million for the second quarter of 2012 and an increase of 9.6 percent from $70.5 million for the third quarter 2011.1

Operating non-interest expense was $43.9 million for the third quarter 2012, compared to $44.5 million for the second quarter of 2012 and $42.4 million for the third quarter of 2011.1 The Company’s operating efficiency ratio on a tax equivalent basis was 54.9 percent for the third quarter 2012, improved from 59.6 percent for the third quarter 2011.1

The Company had 964 full-time equivalent employees September 30, 2012, compared to 911 one year ago.

A key performance metric for the Company is its pre-tax, pre-provision operating earnings, which it defines as net operating revenue less its operating non-interest expense. For the third quarter 2012, the Company’s performance on this metric was $33.4 million, up from $32.1 million in the second quarter 2012 and $28.1 million in the third quarter 2011.1

The provision for credit losses was $8.9 million for the third quarter 2012 compared to $13.3 million for the second quarter 2012. The provision for the third quarter of 2011 was $11.2 million. Net loan charge-offs in the third quarter 2012 were $9.0 million, or 0.70 percent of average loans (annualized), down from 1.11 percent of average loans (annualized) for the second quarter 2012. Net charge-offs for the third quarter 2011 were $15.3 million or 1.40% of average loans (annualized).

Nonaccrual loans increased $16.9 million to $121.2 million during the quarter. Loans past due 90 days and still accruing interest totaled $1.7 million at September 30, 2012, up from $0.8 million at June 30, 2012 and down from $2.1 million at September 30, 2011. Loans past due 30-89 days, still accruing interest totaled $10.2 million at quarter end, down from $13.8 million at June 30, 2012 and from $12.4 million at September 30, 2011.

Classified assets to Tier I capital plus allowance for credit losses, a common regulatory measure of asset quality, improved to 39 percent at September 30, 2012 from 42 percent at September 30, 2011.1

Net loss on sales and valuation of repossessed assets (primarily other real estate) was $0.1 million for the third quarter of 2012 compared to $0.9 million for the second quarter 2012 and $2.1 million in the third quarter 2011. At September 30, 2012, other repossessed assets were valued at $78 million compared to $77 million at June 30, 2012 and $87 million one year ago.

During the quarter, the Company sold its 24.9% interest in Miller/Russell Associates for a gain of $0.8 million. The Company is in discussions to sell its 80% ownership in Shine Investment Advisory Services, Inc. resulting in impairment charges of goodwill and intangibles of $3.4 million during the third quarter 2012.

Balance Sheet

Gross loans totaled $5.33 billion at September 30, 2012, an increase of $168 million from June 30, 2012 and an increase of $806 million from $4.53 billion at September 30, 2011. At September 30, 2012, the allowance for credit losses was 1.83 percent of total loans down from 1.89 percent at June 30, 2012 and 2.21 percent at September 30, 2011.

Deposits totaled $6.16 billion at September 30, 2012, an increase of $161 million from $6.0 billion at June 30, 2012 and an increase of $529 million from $5.63 billion at September 30, 2011.

Non-interest bearing deposits decreased $1.3 million at September 30, 2012 from June 30, 2012 and increased $322 million from $1.52 billion at September 30, 2011. Non-interest bearing deposits comprised 29.9 percent of total deposits at September 30, 2012, compared to 27.0 percent a year ago.

At September 30, 2012, the Company’s loans were 86.5 percent of deposits compared to 86.1 percent at June 30, 2012 and 80.4 percent at September 30, 2011.

Stockholders’ equity at September 30, 2012 increased to $698.0 million from $672.1 million at June 30, 2012. At September 30, 2012, tangible common equity was 7.2 percent of tangible assets1 and total risk-based capital was 12.3 percent of risk-weighted assets.

Total assets increased to $7.40 billion at September 30, 2012 from $7.16 billion at June 30, 2012 and increased 13.0 percent from $6.55 billion at September 30, 2011.

Operating Unit Highlights

Bank of Nevada reported that loans increased by $59 million during the third quarter of 2012, and increased $209 million during the last 12 months to $2.06 billion at September 30, 2012. Deposits decreased by $22 million in the third quarter of 2012 and $58 million over the last twelve months to $2.41 billion. Net income for Bank of Nevada was $5.8 million for the third quarter 2012, compared with net income of $3.8 million for the second quarter of 2012 and net income of $1.7 million during the third quarter 2011.

Western Alliance Bank (doing business as Alliance Bank of Arizona and First Independent Bank) reported loan growth of $88 million during the third quarter 2012 and $387 million during the last 12 months to $1.87 billion. Deposits increased $152 million in the third quarter and $382 million during the last 12 months to $2.15 billion. Net income for Western Alliance Bank was $8.8 million during the third quarter 2012 compared with net income of $7.8 million during the second quarter of 2012 and net income of $5.5 million during the third quarter 2011.

The Torrey Pines Bank segment, which excludes discontinued operations, reported that loans increased $9 million during the third quarter 2012 and $198 million during the last 12 months to $1.43 billion. Deposits increased $21 million in the third quarter 2012 and $214 million over the last 12 months to $1.61 billion. Net income for Torrey Pines Bank was $6.4 million during the third quarter 2012 compared with net income of $5.3 million for the second quarter of 2012 and net income of $5.4 million during the third quarter 2011.

Attached to this press release is summarized financial information for the quarter ended September 30, 2012.

Subsequent Event

On October 17, 2012, the Company completed its acquisition of Western Liberty Bancorp, which on September 30, 2012 had total assets of $183.8 million, total loans of $104.2 million, total deposits of $111.5 million and total equity of $70.6 million. The Company paid $27.5 million and issued 2,966,322 shares for all of the equity interests of Western Liberty. Western Liberty’s primary operating subsidiary, Service1st Bank of Nevada, is now a wholly-owned subsidiary of Western Alliance Bancorporation. The Company expects to merge Service1st Bank into Bank of Nevada at the end of the month. None of the assets or liabilities of Western Liberty are included in this third quarter earnings release, nor are the shares issued by the Company to consummate the merger.

Conference Call and Webcast

Western Alliance Bancorporation will host a conference call and live webcast to discuss its third quarter 2012 financial results at 12:00 p.m. ET on Friday, October 19, 2012. Participants may access the call by dialing 1-866-843-0890 and using passcode: 7288570 or via live audio webcast using the website link: https://services.choruscall.com/links/wal121019.html. The webcast is also available via our website at www.westernalliancebancorp.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 November 12th at 9:00 a.m. ET by dialing 1-877-344-7529 using the conference number 10019200.

About Western Alliance Bancorporation

Western Alliance Bancorporation is the parent company of Bank of Nevada, Western Alliance Bank doing business as Alliance Bank of Arizona and First Independent Bank, Torrey Pines Bank, and Shine Investment Advisory Services. These dynamic organizations provide a broad array of deposit and credit services to clients in Nevada, Arizona and California, and investment services in Colorado. Staffed with experienced financial professionals, these organizations deliver a broader product array and larger credit capacity than community banks, yet are empowered to be more responsive to customers' needs than larger institutions. Additional investor information can be accessed on the Investor Relations page of the company's website, www.westernalliancebancorp.com.

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. 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: factors listed in the Form 10-K 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; 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.

We do not intend and disclaim any duty or obligation to update or revise any industry information or forward-looking statements set forth in this press release to reflect new information, future events or otherwise.

This press release contains both financial measures based on accounting principles generally accepted in the United States (“GAAP”) and non-GAAP based financial measures, which are used where management believes it to be helpful in understanding Western Alliance Bancorporation’s results of operations or financial position. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconcilement 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.

1 See Reconciliation of Non-GAAP Financial Measures beginning on page 16

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