Western Alliance Bancorporation — FY 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; filed February 25, 2022. This is an annual report, not a standalone fourth-quarter earnings release, and the supplied filing text does not provide a clear set of Q4-only results.
Business context
Western Alliance is a Phoenix-based bank holding company operating Western Alliance Bank and its banking divisions, alongside specialized financial businesses. It reports Commercial, Consumer Related, and Corporate & Other segments. AmeriHome, acquired April 7, 2021, added mortgage banking, loan acquisition, and servicing activities; its results are included from the acquisition date.
Financial and operating metrics
| Metric | FY 2021 / year-end | FY 2020 / year-end |
|---|---|---|
| Net income available to common stockholders | $895.7 million | $506.6 million |
| Diluted EPS | $8.67 | $5.04 |
| Net interest income | $1,548.8 million | $1,166.9 million |
| Net interest margin | 3.41% | 3.97% |
| Non-interest income | $404.2 million | $70.8 million |
| Non-interest expense | $851.4 million | $491.6 million |
| Total assets | $56.0 billion | $36.5 billion |
| HFI loans | $39.1 billion | $27.1 billion |
| Deposits | $47.6 billion | $31.9 billion |
| Stockholders’ equity | $5.0 billion | $3.4 billion |
- Net income rose about 77%; reported net revenue rose 57.8% to $2.0 billion. Diluted EPS increased from $5.04 to $8.67.
- AmeriHome drove much of the increase in non-interest income, including $326.2 million in net loan origination and sale gains. Non-interest expense grew 73.2%, reflecting the acquisition, mortgage servicing and origination costs, and $15.3 million of acquisition and restructuring expense.
- Credit costs improved: the company recorded a $21.4 million recovery of credit losses versus a $123.6 million provision in 2020. Net charge-offs were 0.02% of average loans, versus 0.06%; nonperforming assets were 0.15% of assets, versus 0.32%.
- Net interest margin fell 56 basis points, to 3.41%, as asset yields declined and borrowing costs increased, partly offset by lower deposit costs. Return on average assets was 1.83%, up from 1.61%; the efficiency ratio increased to 41.8% from 38.8%.
- Residential real estate HFI loans rose $6.8 billion and commercial and industrial loans rose $4.0 billion. Non-interest-bearing deposits were 44.9% of year-end deposits. Total uninsured deposits were $26.9 billion.
- Year-end funded-loan allowance for credit losses was $252.5 million; the separate allowance for unfunded commitments was $37.6 million.
- Regulatory capital ratios at year-end were 9.1% CET1, 12.3% total capital, and 7.8% Tier 1 leverage at the holding company; the bank’s corresponding ratios were 10.4%, 11.4%, and 8.2%. Both were reported above well-capitalized thresholds. Ratios reflect the elected CECL regulatory-capital transition.
- Year-end cash and cash equivalents were $516.4 million. Management reported $8.7 billion of liquid assets, including $4.0 billion of HFS loans and $4.2 billion of unpledged marketable securities, and considered liquidity adequate for 90–120 days of needs. Operating cash flow was negative $2.654 billion, principally reflecting mortgage loan purchases and originations; financing cash flow was positive $15.211 billion, led by deposit growth.
- Year-end other borrowings were $1.502 billion and qualifying debt was $895.8 million. The company reported no FHLB or FRB borrowings at year-end and disclosed $2.848 billion of available unsecured federal-funds lines, plus available FHLB, FRB, and warehouse capacity.
Material changes and unusual items
- AmeriHome was acquired for approximately $1.2 billion in cash consideration. It contributed mortgage-related revenue and materially expanded HFS loans, mortgage servicing rights, and the Consumer Related segment.
- The company issued $540.3 million net proceeds from common-stock offerings and $294.5 million net proceeds from preferred stock; it also issued $600 million of subordinated notes. The tangible common equity ratio declined to 7.3% from 8.6%, while tangible book value per share rose to $37.84 from $30.90.
- Mortgage servicing rights were valued at $698 million at year-end, using significant estimates. The company sold MSRs during the year, partly in response to their regulatory-capital impact.
- Net cash from operating activities shifted from positive $670.2 million in 2020 to negative $2.654 billion in 2021; the filing attributes the change largely to the acquired mortgage business and its high-volume loan purchase, origination, and sale activity.
- The company completed its acquisition of Digital Settlement Technologies, doing business as Digital Disbursements, on January 25, 2022. Purchase accounting was incomplete at filing.
Outlook, commentary, and risks
- The filing provides no specific earnings or growth guidance. It said the Federal Reserve signaled likely near-term rate increases and that market commentators anticipated multiple hikes in 2022. Company modeling showed 12-month net interest income increasing 4.6% under an immediate 100-basis-point rise and 2.8% under a gradual 100-basis-point rise; these are scenario estimates, not guidance, and depend on assumptions.
- Management cited an improved economic outlook as the main driver of the credit-loss recovery, while continuing to monitor COVID-affected borrowers. Exposures to hotel, investor-dependent, retail, and gaming industries totaled $5.36 billion, or 12.0% of the loan portfolio.
- Key risks include sensitivity to interest rates and net interest margin; real estate, hotel, and geographic concentrations, especially in Arizona, California, and Nevada; deposit competition and uninsured-deposit outflows; credit-loss estimates; mortgage servicing and repurchase obligations; cyber and third-party operational risks; and regulatory, acquisition-integration, and digital-payments risks.
- Employee turnover rose to 19% from 13%, which the company associated with the “Great Resignation.” The filing also disclosed ongoing independent and NBA investigations concerning allegations about Executive Chairman Robert Sarver; outcomes and potential reputational effects were uncertain.
- Auditors issued unqualified opinions on the financial statements and internal control over financial reporting. AmeriHome was excluded from the 2021 internal-control assessment and audit; it represented approximately 13% of consolidated assets and 12% of revenue.
Important facts for investors to verify
- How much of earnings growth and non-interest income is repeatable after separating AmeriHome’s contribution, mortgage-sale gains, credit-loss recovery, and other unusual items.
- Whether deposit growth is stable and relationship-based, given $26.9 billion of uninsured deposits and growth in wholesale brokered deposits to $1.8 billion.
- Credit quality and reserve adequacy in hotel and other commercial real estate exposures, including the $339.4 million of performing problem loans and the assumptions behind the allowance.
- Mortgage servicing-rights valuation sensitivity, servicing performance, and exposure to loan repurchases or investor indemnification.
- Capital and liquidity resilience under rising rates, deposit outflows, and the scheduled phase-in of CECL capital effects; also confirm the acquired AmeriHome business is included in subsequent internal-control assessments.