Western Alliance Bancorporation — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; financial statements are unaudited. Western Alliance is a bank holding company operating commercial banking, mortgage banking and digital payment businesses.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Net interest income | $609.9 million | $449.5 million |
| Net interest margin | 3.79% | 3.32% |
| Provision for credit losses | $19.4 million | $9.0 million |
| Non-interest income | $(58.0) million | $106.3 million |
| Non-interest expense | $347.9 million | $248.6 million |
| Net income / net income available to common stockholders | $142.2 million / $139.0 million | $240.1 million / $236.9 million |
| Diluted EPS | $1.28 | $2.22 |
| Operating cash flow | $357.3 million | $622.9 million |
Net interest income increased 35.7%, reflecting higher loan balances and yields, while higher deposit and borrowing costs absorbed part of the gain. Net revenue was $551.9 million. Non-interest income included a $147.8 million fair-value loss, primarily from loans transferred to held for sale, and a $12.5 million net loss on securities sales; a $12.7 million debt-extinguishment gain partly offset these items. Management’s non-GAAP adjusted diluted EPS was $2.30, versus $2.22 a year earlier; adjusted results exclude specified repositioning-related items and are not GAAP measures.
Financial position, liquidity and capital
- Total assets were $71.0 billion, up $3.3 billion from year-end 2022. Cash and cash equivalents rose to $3.6 billion from $1.0 billion.
- Deposits fell $6.1 billion, or 11.3%, to $47.6 billion. Management said balances stabilized on March 20 and increased through quarter-end. The insured-deposit ratio rose to 68% from 45% at year-end and was 74% on May 2.
- Other borrowings increased to $15.9 billion from $6.3 billion, including $11.0 billion of FHLB advances, $1.3 billion of Bank Term Funding Program borrowings and $1.5 billion of securities repurchase agreements. Reported liquid assets were $5.7 billion; additional available credit included $16.6 billion from the FRB and $676 million from the FHLB.
- Loans held for investment were $46.4 billion, down $5.4 billion. The decrease largely reflects a $5.9 billion transfer to held for sale, recorded net of a $123.5 million fair-value loss adjustment—not solely loan repayments or sales. Total loans held for sale were $7.0 billion.
- Western Alliance Bancorporation’s CET1 ratio was 9.4%, total capital ratio 12.1% and tier 1 leverage ratio 7.8%. The Bank’s corresponding ratios were 10.6%, 11.6% and 8.1%; both were above applicable well-capitalized thresholds. Tangible common equity ratio was 6.5%.
- Unrealized losses were $794 million on available-for-sale securities and $142 million on held-to-maturity securities. Accumulated other comprehensive loss improved to $592 million from $661 million at year-end.
Changes, outlook and risks
- Compared with Q1 2022, net income available to common stockholders declined to $139.0 million from $236.9 million, despite higher net interest income. The decline reflected repositioning charges and higher deposit costs; the efficiency ratio was 62.1%, or 50.0% adjusted, versus 44.1% in Q1 2022.
- The quarter’s balance-sheet and funding actions followed industry disruption after the Silicon Valley Bank and Signature Bank failures. The company sold selected securities and loans, transferred loans to held for sale, and increased borrowing capacity and borrowings. Subsequent to quarter-end, it reported approximately $2.0 billion of loan dispositions with no significant fair-value adjustments upon settlement.
- Credit quality metrics included $107 million of nonaccrual loans, up from $85 million at year-end, and nonperforming assets of 0.17% of total assets. Annualized net loan charge-offs were 0.05%. CRE-related loans were approximately 34% of total loans; office loans were $2.5 billion, or 5.5% of held-for-investment loans.
- Management stated that elevated borrowings could pressure future net interest margin, and that prolonged industry volatility or weaker economic conditions could increase credit-loss estimates and impair asset quality. It expects future FDIC deposit-insurance assessments to increase, though the amount was not yet known. No specific earnings or other financial guidance was provided.
- Interest-rate modeling showed net interest income changing by -0.8% under an immediate 100-basis-point decline and +0.8% under a 100-basis-point increase. Economic value of equity declined 11.7% and 21.0% in the +100- and +200-basis-point scenarios, exceeding internal policy limits; the Board and ALCO approved the breaches. Management cited planned relationship-deposit growth, liquid assets, borrowing paydowns and hedging as mitigation.
- Management reported no material pending legal proceedings and considered routine litigation unlikely to materially affect financial position, results or cash flows. It also found no goodwill impairment indicated at quarter-end, while noting continued monitoring of banking-industry developments.
Key facts for investors to verify
- Deposit trends after quarter-end, including uninsured and brokered funding, reciprocal deposits, and reliance on FHLB/FRB borrowing.
- Whether loan transfers, dispositions and any further fair-value adjustments affect reported loan balances, earnings and capital.
- Changes in deposit pricing, funding costs and net interest margin as elevated borrowings are managed.
- Credit performance and allowance needs, particularly in CRE, office, construction, technology-related and other criticized loan exposures.
- Regulatory capital and liquidity measures, securities marks, and progress in addressing the disclosed EVE policy breaches.