Letter From Our CEO
Dear Clients, Shareholders and Friends of Western Alliance,
It is my privilege to be writing to the shareholders of this terrific company after my first full year as CEO. I have been connected to Western Alliance for over 10 years as an independent board member, director, president and now CEO. I love this company because of its passion for service, commitment to our clients and communities, and the hard work and loyalty of Western Alliance people. The success of our clients has always led to the success of Western Alliance.
It is an honor for me to succeed Robert Sarver, and I’m humbled by the confidence our Board of Directors has shown in my leadership. I am pleased to share our 2018 results and future plans to lift Western Alliance to even higher levels of growth.
Western Alliance had another strong year in 2018. In an environment dominated by change – business, technology, politics and culture – we achieved record financial performance and launched several new business initiatives designed to further our financial performance and meet client expectations in the future. In 2018, loans grew 17% or $2.6 billion while deposits grew 13% or $2.2 billion. Total assets rose to $23.1 billion, which was a 14% increase over the prior year. In 2018, we grew operating revenue 17% to $970 million, and we increased earnings per share by 34% to $4.14.
Our predictable and carefully managed growth generated an industry-leading return on average assets of 2.05% and return on average tangible common equity of 20.6%. These results were achieved against the backdrop of continued strong asset quality, including net loan losses of only 0.06% and total nonperforming assets of just 0.20% to total assets. Our tangible common equity ratio, a common measure of bank capital strength, rose to 10.2% as we added $386 million to our tangible capital. These collective results earned us a top 10 ranking on the most recent Forbes “Best Banks in America” list for the fourth consecutive year, 2016-2019.
This year, as with the banking industry overall, our stock performance did not keep pace with our financial performance. Our five-year total return to shareholders exceeds our peer group and the S&P 500 with a 65.5% total return, or 10.6% annualized, in comparison to share value contraction of 30.3% in 2018. While the company continues to deliver a very steady track record of financial performance, our share price has not captured our consistent results. I remain confident that our risk profile and diversified business model, overlaid with our culture and values, position Western Alliance to perform through a wide range of economic and market cycles.
While we are proud of these financial accomplishments, there is still more to achieve. This is how Western Alliance consistently creates and delivers value -- by focusing on the future while tactically delivering near-term results. Ten years ago our National Business Lines did not exist. Our industry-leading financial performance is the direct result of the powerful combination of our commercial banking within our regional footprint and our specialty banking business expertise that spans the country. This is augmented by the ambition and energy we realize from layering fresh opportunities into the company.
Over the years we have strengthened the company through thoughtful planning and rollout of new strategic initiatives that we have grown into a well-diversified portfolio of businesses. These include Hotel Franchise Finance, Alliance Association Bank (HOA services), Technology and Innovation Lending, along with Mortgage Warehouse Lending, Public and Nonprofit Finance and more. They all share similar characteristics – specialized lending and deposit services with limited competitors, strong asset quality, and high operating leverage requiring skilled bankers.
I believe the scale and composition of our investments in specialized lending are difficult to replicate and provide us with a competitive advantage relative to our regional peer group. The combination of our regional footprint and national presence expands opportunities in different areas of banking and it is the key to our ability to deliver superior results. By managing the regional and national business mix and the customers and markets we serve, we have multiple ways to grow our business. This is not only effective but also efficient: Reflecting on 2018, revenue to expense grew 2.5:1 assisted by our peer-group-leading 41.9% operating efficiency rate, which generated industry-leading financial returns.
At Western Alliance, we believe we are “Right for Business.” Direct access to senior management, responsiveness and staying true to our word allow businesses to trust the commitments we make and benefit from our focus on their business goals. Our nimbleness, and the fact that we see the world as it is and not as we’d like it to be, provide us with clear-eyed perspective. And, because our driving purpose is to serve the needs of our customers, including providing access to credit and liquidity, our success is very much aligned with our clients’ success.
Being right for business also means we actively support the quality of life in the communities we serve. In 2018, we grew our commitment to our communities, making $205 million in new community development loans, contributions of $1.2 million to worthwhile nonprofit organizations, and $133 million in new community investments. Our employees across the country volunteered more than 10,000 hours with community organizations and projects – a real point of pride for us.
Capital is the output of our collective business strategy and financial performance. In 2018, our tangible book value rose 20.5% to $22.07. And, in the fourth quarter of 2018, we adopted a $250 million stock buyback program demonstrating our belief in the value of our company and the strong future ahead. In the fourth quarter, we purchased 901,000 shares at a weighted average price of $39.58. We are appropriately positioned to continue to support balance sheet expansion while continuing to fund loan and deposit initiatives. Our proven business model provides the earnings power and capital generation needed for growth and M&A opportunities, as well as returning capital to shareholders through the share repurchase program.
As we move through 2019 and beyond, I believe Western Alliance is well positioned to execute our long-term strategic vision. Our success is predicated upon the dedication and talent of the Western Alliance people delivering superior products and services to our clients. Lastly, on behalf of the Board and our entire management team, I would like to thank you for your investment and continued confidence in Western Alliance.
Kenneth A. Vecchione / Chief Executive Officer
Western Alliance Bank
At Western Alliance, we believe we are ‘Right for Business.’ Direct access to senior management, responsiveness and staying true to our word allow businesses to trust the commitments we make and benefit from our focus on their business goals. And, because our driving purpose is to serve the needs of our customers, including providing access to credit and liquidity, our success is very much aligned with our clients’ success.”