Fourth Quarter Earnings
Western Alliance Reports Results for the Fourth Quarter 2008
Las Vegas, January 29, 2009 -- Western Alliance Bancorporation (NYSE:WAL) announced today its financial results for 2008 and the fourth quarter 2008.
2008 Highlights:
- Two successful common stock capital raises totaling $80 million and a preferred stock capital raise through the United States Treasury Department Troubled Asset Relief Program’s (TARP) Capital Purchase Program of $140 million, bringing total risk-based regulatory capital to $576 million, increasing the total risk-based capital ratio to 12.2% at December 31, 2008 from 10.3% at December 31, 2007
- Loans of $4.10 billion at December 31, 2008, up 12.7% or $463 million from one year ago
- Customer funds (sum of deposits and customer repurchases) of $3.92 billion at December 31, 2008, up 2.6% or $100 million from one year ago
- Net revenue (sum of net interest income and non-interest income, excluding securities impairment charges and net mark-to-market gains) of $223.8 million, up 9.6% from $204.3 million in 2007
- Net operating loss of $2.1 million (excluding securities impairment charges, net mark-to-market gains and a non-cash goodwill impairment charge), down from net operating income of $34.1 million in 2007
- Diluted net operating loss per share of $0.06 (excluding securities impairment charges, net mark-to-market gains and a non-cash goodwill impairment charge), down from net operating income per share of $1.10 for 2007
- Net loss of $176.9 million, including securities impairment charges of $99.5 million (net of tax), provision for loan losses of $68.2 million and a non-cash goodwill impairment charge of $79.2 million
- Diluted loss per share of $5.45, including securities impairment charges of $3.05 per diluted share (net of tax), loan loss provision expense of $2.09 per diluted share and a non-cash goodwill impairment charge of $2.43 per diluted share
Fourth Quarter 2008 Highlights:
- Net operating loss of $12.2 million (excluding securities impairment charges and net mark-to-market gains) in the fourth quarter 2008, down $13.9 million from the third quarter 2008 (excluding securities impairment charges, net mark-to-market gains and a non-cash goodwill impairment charge)
- Diluted net operating loss per share of $0.32 (excluding securities impairment charges and net mark-to-market gains), down $0.37 from net operating income per share of $0.05 for third quarter 2008 (excluding securities impairment charges, net mark-to-market gains and a non-cash goodwill impairment charge)
- Net loss of $88.7 million , including securities impairment charges of $75.3 million (net of tax) and loan loss provision of $32.3 million
- Diluted loss per share of $2.37, including securities impairment charges of $1.99 per diluted share (net of tax) and loan loss provision expense of $0.85 per diluted share
- Increase in interest margin from 4.16% in the fourth quarter 2007 to 4.30% in the fourth quarter 2008
- Net revenue (sum of net interest income and non-interest income, excluding securities impairment charges and net mark-to-market gains) of $56.3 million, down 1.7% from $57.3 million in the third quarter 2008 and up 5.7% from $53.3 million for the fourth quarter 2007
- Gross loans of $4.10 billion at December 31, 2008, up $149 million from September 30, 2008
- Total customer funds of $3.92 billion, up $177 million from last quarter, including deposits of $3.60 billion at December 31, 2008, up 4.4% or $152 million from September 30, 2008 and customer repurchase agreements of $321 million, up 8.7% or $25 million from September 30, 2008
Financial Performance
Western Alliance Bancorporation reported a net operating loss of $12.2 million, excluding securities impairment charges of $75.3 million (net of tax) and net mark-to-market gains of $3.3 million in the fourth quarter 2008, down $13.9 million from the third quarter 2008.
Net loss of $88.7 million for the fourth quarter 2008, which includes a $32.3 million loan loss provision, decreased $6.0 million from a net loss of $94.7 million for the third quarter 2008. Fourth quarter results include securities impairment charges of $75.3 million (net of tax), and the third quarter results include a non-cash goodwill impairment charge of $79.2 million and securities impairment charges of $20.9 million (net of tax). Given the rapidly changing market conditions, the Company continues to evaluate its remaining securities and goodwill for impairment. The fourth quarter also includes the $2.8 million after-tax loss ($0.07 per share) from PartnersFirst, the Company’s affinity credit card initiative
Gross loans grew $149 million to $4.10 billion at December 31, 2008 from September 30, 2008 and increased $463 million from December 31, 2007.
Customer funds increased $177 million to $3.92 billion at December 31, 2008 from September 30, 2008, comprised of a $152 million increase in deposits and a $25 million increase in customer repurchase agreements. From December 31, 2007, customer funds increased $100 million, comprised of a $54 million increase in deposits and a $46 million increase in customer repurchase agreements. Non-interest bearing title company deposits declined $59 million to $85 million during the year ended December 31, 2008 and decreased $53 million from September 30, 2008.
"This past year and quarter were very challenging for our Company due to unprecedented turmoil in the financial industry and the housing markets, and in our ability to grow deposits due to an industry-wide lack of liquidity," said Robert Sarver, Chairman, President and Chief Executive Officer of Western Alliance
"We look forward to 2009, but acknowledge the U.S. economy will take some time to recover from the national recession. WAL is focused on actively managing credit risk and addressing nonperforming assets, continuing to recruit local bankers with a strong customer following and increasing our deposit market share as we take advantage of the economic dislocations and integration risk assumed by a number of our competitors."
Income Statement
Net interest income increased 8.1 percent to $50.2 million in the fourth quarter 2008 from $46.4 million in the fourth quarter 2007. The net interest margin in the fourth quarter 2008 was 4.30 percent, compared to 4.36 percent in the third quarter 2008. The net interest margin was 4.16 percent in the fourth quarter 2007.
The provision for loan losses was $32.3 million for the fourth quarter 2008 compared to $14.7 million for the third quarter 2008 and $13.9 million for the fourth quarter 2007. Non-accrual loans and other real estate owned were $69.7 million or 1.31 percent of total assets at December 31, 2008, compared with $21.3 million or 0.42 percent of total assets at December 31, 2007. Net loan charge-offs were $14.5 million or 1.45 percent of average loans (annualized), compared to net charge-offs of $4.5 million or 0.49 percent of average loans (annualized) for the same period in 2007. Loans past due 30-89 days totaled $47.7 million at quarter end, up from $35.0 million at September 30, 2008. Loans past due 90 days and still accruing totaled $10.7 million at quarter end, up from $0.7 million at September 30, 2008.
During the fourth quarter 2008, the Company determined that it’s portfolio of collateralized debt obligations (“CDOs”) was other-than-temporarily impaired under generally accepted accounting principles due to the continued expected weakness of the U.S. economy, the decline in the market value of these CDOs and the increase in deferrals and defaults by the issuers of the underlying securities. These CDOs represent interests in various trusts, each of which is collateralized with trust preferred debt issued by other financial institutions. This $108 million portfolio has been written down to $1.4 million, which approximates market value. However, $77 million of these CDOs were current in payments of interest as of December 31, 2008. A significant majority of the security impairment charges were from this CDO portfolio.
Non-interest income, excluding changes in fair value of financial instruments measured at fair value, was $6.1 million for the fourth quarter 2008, down 10.6 percent from $6.9 million for the same period in 2007. This decrease was the result of declining assets under management due to stock market deterioration. For the third quarter 2008, non-interest income was $7.4 million.
Net revenue (sum of net interest income and non-interest income, excluding securities impairment charges and net mark-to-market gains) was $56.3 million for the fourth quarter 2008, up 5.7 percent from $53.3 million for the fourth quarter 2007. For the third quarter 2008, net revenue was $57.3 million.
Non-interest expense (excluding securities impairment charges, net mark-to-market gains and a non-cash goodwill impairment charge) was $43.6 million for the fourth quarter 2008, up 21.3 percent from $36.0 million for the same period in 2007. For the third quarter 2008, non-interest expense was $40.6 million, excluding a non-cash goodwill impairment charge of $79.2 million. We had 1,020 full-time equivalent (FTE) employees and 41 banking offices on December 31, 2008, compared to 1,017 and 41, respectively, on September 30, 2008 and 992 and 39, respectively, on December 31, 2007. During the fourth quarter 2008, we hired 11 team members in Los Angeles.
Net income decreased $91.1 million to a net loss of $88.7 million for the fourth quarter 2008 compared with net income of $2.4 million for the same period last year. Net loss was $94.7 million for the third quarter 2008. Diluted loss per share was $2.37 compared with a $2.84 diluted loss per share for the third quarter 2008 and diluted earnings per share of $0.08 for the fourth quarter 2007. Average diluted shares increased 24.8 percent to 39.1 million for the fourth quarter 2008 compared with 31.3 million for the fourth quarter 2007.
For 2008, net income decreased $209.7 million to a net loss of $176.9 million from net income of $32.9 million for 2007. Diluted loss per share was $5.45 compared to earnings per share of $1.06 in 2007. Average diluted shares increased 8.0 percent to 33.5 million compared to 31.0 million last year.
Balance Sheet
Gross loans totaled $4.10 billion at December 31, 2008, an increase of 3.8 percent from September 30, 2008 and 12.7 percent from $3.63 billion at December 31, 2007. At December 31, 2008 the allowance for loan losses was 1.83 percent of gross loans, compared to 1.45 percent at September 30, 2008 and 1.36 percent at December 31, 2007.
Customer funds totaled $3.92 billion at December 31, 2008, an increase of $177 million from September 30, 2008 and an increase of $100 million from $3.82 billion at December 31, 2007.
Non-interest bearing deposits, which include title company deposits for which the Company incurs non-interest expense for the benefit of the depositor, comprised 28.3 percent of total deposits at December 31, 2008. As of December 31, 2008, non-interest bearing deposits from title companies were 2.4 percent of total deposits, compared to 4.0 percent at September 30, 2008, and 4.1 percent at December 31, 2007.
At December 31, 2008 the company’s loan to deposit ratio was 113.8 percent compared with 102.4 percent one year earlier. Borrowings, including non-relationship brokered deposits, totaled $697 million at December 31, 2008, up $152 million from $545 million one year earlier. The majority of these borrowings represent overnight advances from the Federal Home Loan Bank of San Francisco
Stockholders' equity increased $76 million from September 30, 2008 to $554 million at December 31, 2008, due to capital raised through preferred stock issued to the United States Treasury. Our accumulated other comprehensive loss has increased only marginally since December 2007 due mainly to the Company’s decision to recognize impairment charges caused by widening of credit spreads, which negatively affected the market values of our trust preferred CDO and adjustable rate preferred stock portfolios, decreasing our other comprehensive loss by $24.6 million to $27.5 million for the quarter ended December 31, 2008. At December 31, 2008 tangible equity was 7.7 percent of tangible assets and total risk-based capital was 12.2 percent of risk-weighted assets.
Total assets increased 5.7 percent to $5.30 billion at December 31, 2008 from $5.02 billion at December 31, 2007.
Operating Unit Highlights
Our Nevada banking operations, which include Bank of Nevada and First Independent Bank of Nevada, reported loan growth of $25 million during the fourth quarter 2008 and $121 million during the full year to $2.66 billion at December 31, 2008. Customer funds decreased $49 million and increased $211 million to $2.34 billion during the same periods, respectively. Net operating loss for our Nevada banks was $4.3 million (excluding $6.2 million mark-to-market gains and securities impairment charges of $55.4 million, net of tax) in the fourth quarter 2008 compared with net operating income of $1.3 million (excluding securities impairment charges of $1.9 million, net of tax) during the fourth quarter 2007. Net loss for our Nevada banks was $63.2 million during the fourth quarter 2008 compared with net income of $0.9 million during the fourth quarter 2007.
Our California banking operations, which include Torrey Pines Bank and Alta Alliance Bank, reported loan growth of $63 million during the fourth quarter 2008 and $220 million during the full year to $774 million. Customer funds increased $160 million and $228 million to $838 million during the same periods, respectively. Net operating income for our California banks was $0.2 million (excluding $3.0 million mark-to-market gains and securities impairment charges of $11.2 million, net of tax) in the fourth quarter 2008. Net loss for our California banks was $12.3 million during the fourth quarter 2008 compared with net income of $1.4 million during the fourth quarter 2007.
Our Arizona banking operations, which consists of Alliance Bank of Arizona, reported loan growth of $56 million during the fourth quarter 2008 and an increase of $94 million during the full year to $678 million. Customer funds increased $48 million and $80 million to $744 million during the same periods, respectively. Net operating loss for our Arizona bank was $2.3 million (excluding $0.8 million mark-to-market gains and securities impairment charges of $8.7 million, net of tax) in the fourth quarter 2008. Net loss for our Arizona bank was $10.7 million during the fourth quarter 2008 compared with net income of $0.3 million during the fourth quarter 2007.
Assets under management business line, which includes Miller/Russell and Associates, Shine Investment Advisory Services and Premier Trust were $1.66 billion at December 31, 2008, down 28.1 percent from $2.31 billion at December 31, 2007, primarily due to valuation declines in equity securities. Assets under administration by the three entities decreased 27.1 percent from $2.51 billion to $1.83 billion at December 31, 2008.
Our affinity credit card business line, PartnersFirst, launched 11 new affinity groups and opened 1,836 accounts during the fourth quarter 2008. Losses incurred by PartnersFirst for the quarter ended December 31, 2008 were $2.8 million.
Attached to this press release is summarized financial information for the quarter and year ended December 31, 2008.
Conference Call
Western Alliance Bancorporation will host a conference call to discuss its fourth quarter 2008 financial results at 10:00 a.m. ET on Friday, January 30, 2009. Participants may access the call by dialing 800-860-2442. The call will be recorded and made available for replay after 2:00 p.m. ET January 30, until 9 a.m. ET February 6th, by dialing 1-877-344-7529 using the pass code 427266.
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 initial public offering registration statement 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 loan 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.
About Western Alliance Bancorporation
Western Alliance Bancorporation is the parent company of Bank of Nevada, First Independent Bank of Nevada, Alliance Bank of Arizona, Torrey Pines Bank, Alta Alliance Bank, Miller/Russell & Associates, Shine Investment Advisory Services, Premier Trust and PartnersFirst. These dynamic organizations provide a broad array of banking, leasing, trust, investment, and mortgage services to clients in Nevada, Arizona and California, investment services in Colorado, and bank card services nationwide. 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, westernalliancebancorp.com.
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