Western Alliance Bancorporation — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Western Alliance is a bank holding company headquartered in Phoenix, Arizona, with commercial banking, consumer-related and mortgage banking, and other financial services businesses. Financial statements are unaudited.
Financial performance
| Metric | Q1 2024 | Comparable period / change |
|---|---|---|
| Net interest income | $598.9 million | $609.9 million in Q1 2023; down 1.8% |
| Net interest margin | 3.60% | 3.79% in Q1 2023 |
| Non-interest income | $129.9 million | $(58.0) million in Q1 2023 |
| Net revenue | $728.8 million | $551.9 million in Q1 2023 |
| Non-interest expense | $481.8 million | $347.9 million in Q1 2023 |
| Pre-provision net revenue (PPNR) | $247.0 million | $204.0 million in Q1 2023; adjusted Q1 2024 PPNR was $264.6 million excluding the FDIC special assessment |
| Provision for credit losses | $15.2 million | $19.4 million in Q1 2023 |
| Net income / common earnings | $177.4 million / $174.2 million | $142.2 million / $139.0 million in Q1 2023 |
| Diluted EPS | $1.60 | $1.28 in Q1 2023; adjusted Q1 2024 diluted EPS was $1.72 excluding the FDIC assessment |
| Operating cash flow | $(306.5) million | $357.3 million provided in Q1 2023 |
Higher deposit costs and rates pressured net interest income and margin. Non-interest income improved primarily because the prior-year period included a $147.8 million fair-value loss associated with balance-sheet repositioning; Q1 2024 also benefited from higher equity investment income and mortgage banking gains. The efficiency ratio was 65.2%, or 62.9% excluding the FDIC assessment, versus 62.0% in Q1 2023.
Balance sheet, liquidity and capital
- Total assets were $77.0 billion at March 31, up $6.1 billion from year-end 2023. HFI loans were $50.7 billion, up $403 million, while investment securities increased $3.4 billion to $16.1 billion.
- Deposits rose $6.9 billion, or 12.5%, to $62.2 billion; non-interest-bearing demand deposits increased $3.9 billion. Deposits included $6.5 billion of wholesale brokered deposits and $14.5 billion of reciprocal deposits.
- Cash and cash equivalents were $3.55 billion. Management reported $12.0 billion of liquid assets, including cash at the FRB and unpledged securities. Available credit included $8.0 billion at the FHLB, $10.9 billion at the FRB and $2.25 billion of warehouse capacity; the filing states these facilities were undrawn except for FHLB borrowings.
- Other borrowings were $6.22 billion, down from $7.23 billion at year-end; qualifying debt was $896 million. Total liabilities were $70.8 billion and stockholders’ equity was $6.17 billion.
- Regulatory capital ratios at March 31 included 11.0% CET1 and 14.0% total capital at the holding-company level; the bank’s CET1 ratio was 12.0%. The company and bank exceeded reported well-capitalized thresholds.
- AFS securities had $754 million of gross unrealized losses at quarter-end; AOCI loss increased to $558 million from $513 million at year-end. These unrealized losses are sensitive to market rates and security values.
Credit quality and material changes
- Nonaccrual loans increased to $399 million from $273 million at year-end; nonperforming loans, including restructured loans and certain accruing past-due loans, were $534 million. Nonperforming assets were $542 million, or 0.53% of total assets.
- Annualized net loan charge-offs were 0.08%, compared with 0.05% in Q1 2023. The funded-loan allowance was $340 million, or 0.67% of funded loans; the allowance for unfunded commitments was $33 million.
- Commercial real estate represented about 32% of total loans. Non-owner-occupied office loans were $2.49 billion, about 4.9% of HFI loans; $266 million was scheduled to mature during the remainder of 2024. Management said it was monitoring CRE exposures and limiting portfolio growth, while warning that worsening market conditions could weaken asset quality.
- Non-interest expense rose $133.9 million year over year, mainly from deposit costs, insurance, and data processing. The $17.6 million FDIC special assessment was recorded in Q1 2024.
- Operating cash flow was negative, while investing activities used $3.65 billion, reflecting substantial securities purchases and loan growth. Financing activities provided $5.93 billion, chiefly from deposit growth.
Outlook, risks and contingencies
The filing provides no specific earnings, margin, loan-growth, or deposit-growth guidance. Management says liquidity is adequate under normal and stressed conditions and estimates parent-company liquidity could support operations for over twelve months without new funding under its stated assumptions. Interest-rate sensitivity analysis showed projected next-12-month net interest income changes of negative 14.1% and positive 13.6% under parallel shocks of down 200 and up 200 basis points, respectively; the EVE model showed negative 11.6% under a 200-basis-point increase. Management reported both measures within current guidelines, while cautioning that model assumptions and actual outcomes may differ.
Key risks identified include interest-rate changes and deposit competition; reliance on deposits, including brokered deposits; CRE and other loan concentrations; credit deterioration and estimate uncertainty; access to FHLB/FRB funding; market and economic conditions; and operational, regulatory, cyber, fraud, and third-party risks. The company reported routine litigation but no material pending legal proceedings and said resolution of routine matters is not expected to materially affect results. Unfunded credit commitments and letters of credit totaled $13.77 billion; amounts drawn are uncertain. No material changes to previously disclosed risk factors were reported.
Most important facts for investors to verify
- Whether deposit growth persists and its cost, mix, and dependence on reciprocal and brokered funding.
- Trends in net interest margin, deposit pricing, and interest-rate sensitivity versus modeled assumptions.
- Performance of CRE, particularly non-owner-occupied office loans and upcoming maturities, alongside nonaccrual and classified-asset trends.
- Whether the allowance for credit losses and charge-off experience remain adequate as asset quality evolves.
- Effects of unrealized securities losses, liquidity availability, and the FDIC special assessment on capital and earnings.