One of the main small U.S. banks involved in the "crisis" released its financial report, exceeding most Wall Street analysts' expectations.

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Last Thursday, loan fraud cases disclosed by two US regional banks, Zions Bancorp and Western Alliance Bancorp, triggered market panic, causing US stocks to plunge that day. The S&P Regional Banks Select Industry Index plummeted by 6.3%, marking its worst single-day performance in months. Investors worry that this is just the tip of the iceberg.

After the US stock market closed on Tuesday, Western Alliance Bancorp, one of the key players and headquartered in Phoenix, Arizona, released its financial report. Its third-quarter profit surged over 27% year-over-year, exceeding most Wall Street analysts’ expectations, which undoubtedly gave investors some relief.

The alleged fraud incident connected with a commercial real estate investment group, which had previously worried the market, did not harm Western Alliance Bancorp’s overall financial health. After the news was released, the bank’s stock price rose about 4% in after-hours trading, almost recouping last Thursday’s losses, though it remains some distance away from the early September high.

Western Alliance Bancorp achieved a net profit of $250.2 million for the three months ending in September, equivalent to $2.28 earnings per common share. Net interest income (the difference between the income from bank loans and the cost of deposit interest) increased by 7.7% year-over-year to $750.4 million, higher than the average analyst expectation of $737 million.

Western Alliance Bancorp made a provision of $31.1 million for impaired loans, close to the market estimate of $30 million. The allowance for future credit losses rose to $80 million, almost double analysts’ expectations.

No new adverse information appeared in Western Alliance Bancorp’s financial report, and the overall strong performance eased last week’s market tension. At that time, Western Alliance had admitted problems with some loans issued to the investment group, sparking concerns; other banks had suffered losses from similar loans suddenly turning sour, further escalating market panic.

In August this year, Western Alliance filed a lawsuit against the investment group, accusing it of manipulating the loan structure, resulting in the bank not being repaid in the priority order. Western Alliance stated that the group still owes about $98 million, but the latest assessment showed the bank possesses adequate collateral.

According to the complaint filed in Los Angeles in August, these loans were supposed to be collateralized by the real estate in the group’s investment fund, but these properties had actually been foreclosed upon, a situation not disclosed to the bank. The group denies any wrongdoing.

The case resurfaced last week—Zions Bancorp also filed a lawsuit against the same investment group, disclosing a $50 million bad debt provision for suspected fraud. On the day this news broke, October 16, both banks’ stock prices plunged by more than 10%.

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